Trump's Big Beautiful Bill - Additional Withholding Taxes?

You may have heard about a potential increase in withholding taxes for non-US residents holding investments inside the US. This has become notable in the news lately as part of Trump's "One Big Beautiful Bill Act" in section 899. Trump's administration has demonstrated they are willing to use extreme negotiation tactics in order to achieve their objectives, and this latest move is no different.

Section 899 is designed to impose retaliatory tax measures against countries that the US deem are unfair with their tax practices. An example of this would include how Canada uses the Digital Services Tax (DST) to impose taxes on large technology companies for generating revenues off of Canadian consumers through advertising. If enacted, Section 899 would increase US non-resident withholding tax rates on US-source investment income earned by residents of these "discriminatory" countries.

• The increase would be an incremental 5% withholding tax increase each year for four years, potentially resulting in a total increase of 20% above existing rates.
• This increase would be applied to either the standard US Internal Revenue Code (IRC) withholding tax rate (generally 30%) or the reduced rate under the Canada-US tax treaty (e.g., 15% on dividends for individuals).
• For US-source dividend income, the rate could potentially increase from 15% (under the treaty) to 35%, or even up to 50% if the increase is based on the 30% IRC rate.
• For interest payments, the rate could increase from 0% (under the treaty) to 5% in the first year to 20% in the fourth year.
• For royalties, the rate could increase from 10% to 15% in the first year to 30% in the fourth year.

This is quite significant, since RRSP assets which hold US based companies currently enjoy a 0% withholding tax rate on dividends or interest income. The proposed measure could see the withholding tax rates increase from 20% up to 50%. Currently, Canadian's cannot claim foreign tax credits for the withholding tax since they've been exempt previously.

Of course, this would be hugely impactful for Canadians and other global investors whose majority holdings might be in US based assets. Should we be worried? 

We've seen many extreme actions taken by President Trump so far, and this might be no different. After all, one has to wonder - if Trump imposes additional withholding taxes on US non-residents and corporations, could that drive foreign investment away from US entities? Is that really the effect that Trump wants to have? And how much do foreign entities play in the ownership of US assets? Well, we do have an answer for this.



The chart above illustrates that when it comes to who the US is targeting with their "revenge tax", the majority of foreign assets are owned by the countries they are targeting. This raises the question: can the US really afford to alienate large sources of capital by reducing the appeal of US assets with punitive withholding taxes?

Meanwhile, recent amendments made by the US Senate Finance Committee on June 16th, 2025 have already toned down the aggressiveness of the initial bill. First, the Senate delayed implementation of the changes by one year, making the earliest effective date for the changes to come into effect to be January 1st, 2027. Second, it reduced the potential tax impact by capping the additional withholding tax to 15%, down from the previous 20% cap. There was also major changes to exclude portfolio interest on treasuries, agency debt and MBS (mortgage backed securities), corporate debt, and excluded foreign governments and central banks from interest withholding tax.

 The final thought? It seems as though this is another aggressive tactic taken by the Trump administration to get more of what they want - reduced foreign taxes on some of their major US companies so they can collect the revenue instead. It's clear that policy makers in the US and abroad do not want this implemented. As House Ways and Means Committee Chairman Jason Smith hoped, the measure would serve it's purpose by forcing other countries to change their laws, making its actual implementation unnecessary. "Hopefully it'll never take an effect," said Smith. 

Best,

Jon


Jonathan Adomait
Financial Planner | CFP, CIM, B.Eng