ICSC Urges Senate to Revise Section 899 Provisions

This week ICSC joined 10 other organizations in submitting a letter to Senate Majority Leader John Thune (R-SD) and Senate Finance Chair Mike Crapo (R-ID) urging the Senate to revise proposed Section 899 to exempt non-controlling investments in U.S. real estate.

Section 899, which was included in the House-passed reconciliation bill, would impose steep retaliatory taxes—up to 50%—on foreign taxpayers from countries that discriminate against U.S. businesses through their own tax regimes. If enacted in its current form, in addition to taxing foreign companies, Section 899 could raise tax rates on passive foreign investment in the U.S.

Congress’ Joint Committee on Taxation has asserted that the “retaliatory tax” could in effect lead to a decline in foreign demand for U.S. assets and lower U.S. tax revenue.

The provision focuses on three foreign taxes it considers discriminatory, which would impact investments from the following countries:

1. Digital Services Tax (DST): Canada, Austria, Denmark, France, India, Italy, Poland, Spain, Switzerland, Turkey and UK.
2. Undertaxed Profits Rules (UTPR): EU, UK, Japan, S Korea, Vietnam and Argentina.
3. Diverted Profits Tax (DPT): UK and Australia.

The letter states, in part:

“We support the effort to pressure foreign governments to reform tax policies that unfairly target American businesses and their employees. The undersigned real estate organizations are concerned, however, that the retaliatory tax measures in the House-passed budget reconciliation bill, as currently drafted, could have significant negative, unintended consequences. These include higher mortgage rates, reduced housing supply, decreased investment in urban and rural communities, fewer jobs, and slower economic growth. We urge the Senate to revise proposed Section 899 to exempt non-controlling minority investments in U.S. real estate, regardless of whether those investment are made through equity or debt. Such an exemption is necessary to ensure U.S. taxpayers continue to have access to foreign capital for real estate investment.”

The letter goes on to outline concerns that Section 899 will cause an exodus of foreign real estate investment and impose new and unintended tax burdens on U.S. real estate owners.

ICSC was joined on the letter by American Hotel & Lodging Association, American Resort Development Association, American Seniors Housing Association, CRE Finance Council, Mortgage Bankers Association, NAIOP, Nareit, National Multifamily Housing Council, National Apartment Association and The Real Estate Roundtable.

For more information contact Phillips Hinch at phinch@icsc.com.