Proposed Section 899 of the Big Beautiful Bill Threatens International Financial Backers
The United States has long been a prime location for foreign direct investment (FDI). In the year 2022 alone, foreign companies invested a staggering $177 billion in this country. However, things may be changing, thanks to the One Big Beautiful Bill Tax Act (OBBB) that passed through the U.S. House of Representatives in May 2025.
This new legislation, especially certain provisions, could impact FDI in the U.S., with a broader reach particularly affecting common asset protection and wealth planning strategies. The OBBB aims to act as a retaliatory measure against discriminatory foreign countries, imposing higher taxes, such as increased withholding rates, on investments, corporate holdings, and more.
Now, let's discuss Form 5472 and its reporting obligations for foreign-owned U.S. corporations. Foreign individuals or entities owning 25% or more of a U.S. corporation or foreign corporations engaged in a U.S. trade or business must report transactions with these corporations. Failure to file Form 5472 promptly and accurately can lead to severe penalties, including substantial fines and penalties.
The OBBB has significant implications for foreign asset protection trusts (FAPTs) holding U.S. entities with U.S. investments. Transferring assets from a U.S. person to a foreign trust is treated as a grantor trust, with the U.S. person taxed on the trust's income. Beneficiaries of the foreign trust, particularly if they are U.S. residents, would also be subject to tax, as well as additional foreign trust reporting requirements, such as filing Forms 3520 and 3520-A.
For foreign investors and global families with U.S. investments and connections, proactive planning and compliance are essential. Proactively filing any required returns can start statutes of limitations on audits and alleviate some penalties. Additionally, restructuring investments, ownerships, and transfers in response to the proposed Section 899 can help prevent additional tax exposure before it's too late.
The OBBB, with its new tax measures and increased reporting obligations, has the potential to deter investment from targeted countries due to a higher tax burden, uncertainty, and complexity. While some provisions aim to protect U.S. multinationals from perceived unfair foreign taxation, they might also make the U.S. a less attractive destination for certain foreign investors.
In closing, foreign investors should carefully review their investment and asset protection structures and ensure full compliance with U.S. tax reporting requirements to avoid potential penalties and prevent additional tax exposure. Stay informed, be proactive, and maintain a strategic approach to safeguard your investments.
- The One Big Beautiful Bill Tax Act (OBBB) may affect the financial decisions of foreign investors, as it introduces higher taxes on investments and corporate holdings, including controlled corporations and foreign trusts like the 3520a with U.S. investments.
- For foreign investors with U.S. business interests, proactive planning and compliance are crucial to ensure they are not subject to potential penalties from the OBBB's increased reporting obligations, as well as to maintain an attractive investment climate for their holdings in the United States.
