PensionsEurope has urged the US Senate Committee on Finance to amend Section 899 of the One Beautiful Bill Act, warning that, as drafted, it may have unintended consequences for pension investors.

In a letter to the Senate Finance Committee, PensionsEurope set out several recommendations to amend Section 899.

The first suggestion was for the Senate to explicitly exclude regulated foreign pension fund institutions from the definition of "applicable persons."

PensionsEurope said that alternatively, it could ensure that dividends received by pension funds are not subject to additional withholding under this provision.

The second recommendation was that although portfolio interest is exempt from Section 899, it needs to be “unambiguously” stated in the statute to give certainty to market participants and withholding agents.

The final recommendation was for the implementation of Section 899 to be delayed until 1 January 2027, allowing for adequate time to assess the impact of tax treaties and other legal concerns, which would avoid "hasty decisions and unintended consequences".

PensionsEurope also noted that time is needed for legislative adaptation and to provide clarity around which jurisdictions may be classified as “discriminatory”.

The letter stated that as major institutional investors in the US economy, European pension funds allocate significant long-term capital through US equities, bonds, infrastructure, real estate and private equity – often via US-based asset managers.

It emphasised that pension funds are not the target of section 899 and should not be the casualty.

Section 899 aims to deter foreign jurisdictions from implementing discriminatory taxes on US multinationals, such as digital services taxes, diverted profits taxes, or pillar two undertaxed profits rules.

However, PensionsEurope said that as US pension funds are passive long-term investors and are not within the scope of these foreign “unfair” taxes, based on the principle of reciprocity, it would have been expected that European pension funds would likewise not be targeted by Section 899.

“In both the US and Europe, pension systems primarily serve ordinary people, middle-class workers and retirees. Approximately 60 per cent of European pension payments are financed through investment returns,” it stated.

“A blanket application of Section 899 withholding taxes on dividend income would erode retirement income security for millions and could diminish the U.S. market's attractiveness as a destination for long-term global capital.”

PensionsEurope also warned that Section 899 could “significantly” alter portfolio allocations, as the US stock market represents 60 per cent of global equities.

It added that proposals suggesting withholding rates as high as 50 per cent on US dividends for investors from "discriminatory jurisdictions" are financially unsustainable for pension funds, which over time could lead to capital outflows, reducing foreign participation in US equity, and may impact broader US economic indicators.

PensionsEurope concluded that legislative clarity and sufficient implementation time are vital, stating: “We stand ready to support a balanced solution that protects both US policy interests and the integrity of cross-border pension investment."

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