Tax proposal announced in the US may affect non-US Groups

While it should be noted that this is still mere draft legislation and subject to change as it moves through Congress, we wanted to share a few immediate observations specifically of importance for Danish companies with operations in the US.

New proposals affecting businesses

• Section 899 “Enforcement of Remedies against Unfair Foreign Taxes” – with introduction of withholding taxes on payments from US to non-US recipients and significant expansion of the applicability of BEAT rules for non-US parented Groups, so that also small and midsized groups can be comprised by the rules – see more details below.

• 100% bonus depreciation – for certain investments in tangible assets made after January 19, 2025

• Research & Development (R&D) expenses - immediate expensing of US based R&D expenses rather than requiring capitalization and amortization. Please note that this does not apply to foreign R&D expenses that are invoiced to a US entity.

• Interest limitation rules – the basis for interest limitation under section 163 (j) is changed from the EBIT to EBITDA result – the allowed interest deduction remains at 30% of the basis.

Section 899 “Enforcement of Remedies Against Unfair Foreign Taxes”

The bill includes a Section 899 retaliatory provision against so-called "unfair taxes". Briefly, unfair taxes are defined as the Pillar 2 UTPR, digital service taxes (DSTs), diverted profits taxes, and other foreign taxes identified by the Treasury.

To the extent any jurisdiction has such unfair taxes, this could have the following two consequences:

1. Taxes on withholdable payments to persons resident in such jurisdictions are increased by 5% each year, up to 20%. This is incremental above any applicable treaty rate (i.e., does not override the treaty entirely to start with 30%), so if a payment is currently exempt from US WHT under the double tax treaty, the incremental tax in Year 1 would be 5%, not 35%. The effective date is the first calendar year beginning 90 days after enactment (so 2026 assuming enactment before October).
2. The BEAT rules would be modified for US companies owned by applicable foreign persons (i.e., those owned by more than 50% by tax residents in "discriminating jurisdictions"), with the effect:       

• Elimination of the existing $500m gross receipts and 3% deductions thresholds, thus causing all US companies (regardless of size) owned by applicable foreign persons to be subject to the BEAT rules

• An increase of the BEAT rate from 10% to 12.5%

• Modified BEAT liability computation, for example, by adding back any related party expenses (e.g., interest, royalties, etc.) capitalized into COGS (where not otherwise embedded).

In short, this means that if Section 899 passes in the proposed form, companies who have never calculated BEAT due to being under the thresholds may need to do so in 2026. Other companies that aren't paying BEAT now may incur a BEAT liability going forward due to the specific adjustments to the BEAT computation. In addition, there would be incremental withholding taxes on payments out of the US even if today all payments are exempt from US WHT under the double tax treaty. 

Next steps

Under the current timeline, the House is expected to pass the bill on to the Senate before Memorial Day (26 of May), for the Senate to sign off during June 2025 with the aim to have it signed into law by the President on / before the 4th of July.  

As a result, companies need to prepare for this legislation to come. At the same time, it is not expected that European countries will be able to change the Pillar 2 UTPR rules so that they avoid being affected by the proposed legislative changes in the near future.

To start with, companies should have a clear view on any withholdable payments being made out of the US today and any currently applicable withholding taxes.  

At the same time, companies should think through their BEAT profile and at a high level calculate the potential incremental exposure to the BEAT. Ultimately, this could warrant changes to the company's operating model / transfer pricing set-up vis-a-vis the US, which needs to be considered carefully in conjunction with future and ongoing tariffs discussions, etc. 

Contact us

Please reach out to us, if you would like to have further information or discuss potential changes for your business structure in the US.

On June 4, 2025 PwC is hosting a morning meeting about International Tax, where our colleagues from PwC US are attending and will provide further information about the tax proposals. You can sign up for the morning meeting here.