The One Big Beautiful Bill Act: Implications for Non-US Investors in Private Equity Transactions

Strategic Insights -

The One Big Beautiful Bill Act, a budget reconciliation bill, has passed the US House of Representatives and is under Senate consideration. The bill, if enacted, would make significant changes to US income tax law, including the addition of a new section 899 to the Internal Revenue Code. Section 899 could have a material impact on non-US investors in private equity transactions and financings, particularly sovereign wealth funds (SWFs). The provision, labeled the "revenge tax" by the press, would increase the US tax rates applicable to foreign investors in discriminatory foreign countries by 5% per year, up to a maximum increase of 20% above the statutory rate.

Key Takeaways:

  • Section 899 would increase the US tax rates applicable to foreign investors in discriminatory foreign countries by 5% per year, up to a maximum increase of 20% above the statutory rate.
  • The provision would apply to withholding taxes on dividends and interest, as well as US income taxes on active income and taxes on sales of interest in US real property and US real property holding companies.
  • The US has a broad network of income tax treaties with most of its major trading partners, which could be impacted by the application of section 899.
  • The Super BEAT regime would impose an increased BEAT rate of 12.5% on non-publicly held US subsidiaries majority-owned or controlled by foreign parents.
  • The provision could have material implications for non-US investors in private equity funds and private equity portfolio companies.
  • Implications include increased withholding tax rates on dividends and interest, as well as increased tax liability for portfolio companies of PE funds.

Statistics:

  • 20% maximum increase in US tax rates applicable to foreign investors in discriminatory foreign countries.
  • 5% annual increase in US tax rates applicable to foreign investors in discriminatory foreign countries.
  • 12.5% increased BEAT rate applicable to non-publicly held US subsidiaries majority-owned or controlled by foreign parents.
  • $500 million gross receipts threshold for corporations subject to the BEAT regime.
  • 3% (2% for certain financial firms) base erosion payments threshold for corporations subject to the BEAT regime.

Sources:

  • [1] "One Big Beautiful Bill Act," Joint Committee on Taxation, House Report, May 2025.
  • [2] "Taxation and Relief Act of 2025," HR2971, 117th Congress (2023-2024).
  • [3] Dechert, "The One Big Beautiful Bill Act: Implications for Non-US Investors in Private Equity Transactions," Joshua Milgrim, 2025.
  • [4] Mondaq, "One Big Beautiful Bill Act: Implications for Non-US Investors in Private Equity Transactions," 2025.