The US Treasury Secretary is advocating for the removal of retaliatory US tax provisions which could impose higher taxes on Australian entities investing and operating in the US.

Last Wednesday (25 June), Australian Treasurer Jim Chalmers met with his US counterpart, US Treasury Secretary Scott Bessent, to discuss the US-Australia economic relationship.

A key point of discussion was retaliatory tax provisions outlined in the US ‘Big Beautiful Bill’ which could see Australian investors slapped with tax bills 15 to 20 per cent higher than their current rates.

On Friday, Bessent said that he would advocate for the removal of Section 899, the part of the bill that would target “unfair foreign taxes” with retaliatory tax hikes.

“After months of productive dialogue with other countries on the OECD global tax deal, we will announce a joint understanding among G7 countries that defends American interests,” Scott Bessent said in a post on X.

“Based on this progress and understanding, I have asked the Senate and House to remove the Section 899 protective measure from consideration in the One, Big, Beautiful Bill.”

CPA tax lead Jenny Wong said that the removal of Section 899 would be a welcome development for Australian investors, although uncertainty would remain high due to recent policy volatility in the US.

“The decision is good news for Australian businesses with [or] investing in US operations. It avoids the risk of discriminatory tax hikes that would have distorted business decisions and raised the cost of doing business in the US,” Wong said.

“The removal of Section 899 spares Australian businesses from navigating punitive US taxes under the “One Big, Beautiful Bill” that could have potentially created consequences under Australian tax law – especially entitlements to foreign income tax offsets.”

Westpac economist Jameson Coombs warned that US policies targeting foreign investors could have far-reaching economic consequences in Australia, outstripping the potential impact of US tariffs.

Coombs said that $1.5 trillion AUD of Australia’s offshore investments were in the US, equivalent to almost 20 per cent of all household financial assets. A US foreign investment crackdown would have much further-reaching consequences than Trump’s feared tariff policies, he warned.

“If triggered, this would have significant implications for Australia’s $27.9bn of annual income generated from US assets, potentially triggering a large reallocation of our foreign assets,” Coombs said.

“Even with a watered-down section 899 which only applies to equity income, this would equate to an annual tax bill of $900m at 5% or up to $3.7bn at 20%.”

While the walk-back of Section 899 would be good news for Australians with US interests, Jenny Wong noted that other tax provisions could still cause headaches.

This includes Section 891 of the Internal Revenue Code, a provision enabling the US to double its tax rates on foreign citizens and corporations from countries imposing “discriminatory or extraterritorial taxes” on US entities.

“Section 891 – an old provision which allows the US to impose retaliatory tax measures – still sits on the books, and a fragmented global tax landscape means there's still a long way to go before genuine certainty is achieved.”