Despite the possible deferral of key measures of US President Donald Trump’s Big Beautiful Bill – like Section 899 until 2027 – institutional investors remain concerned.
Currently, two versions of the bill exist – one from the House and one from the Senate – and both must be reconciled before being sent to President Trump for approval.
Ultimately, if the bill passes and Australia is deemed to have targeted tax practices, accounting firm Pitcher Partners warned Canberra may face pressure to reform its laws to avoid being labelled an “offending” or “discriminatory” jurisdiction.
For now, Australian investors with US exposure are closely monitoring developments, with some reassessing their positions and pausing new investments.
Namely, Stuart Eliot, AMP’s head of portfolio management, told InvestorDaily the firm is taking a “cautious approach” as it reviews its strategy in response to the proposed tax reforms.
“With ongoing uncertainty around proposed US tax reforms – particularly the Section 899 provision – we’re taking a cautious approach to new long-term investments in the US,” Eliot said.
“This isn’t a reflection of the broader US economy, but a prudent pause while we assess our long-term investment strategy.”
While other institutional investors are known to be watching the legislation closely, AMP is one of the few to publicly acknowledge a shift in capital deployment due to the potential implications of the Trump administration’s sweeping tax proposals.
Even with the Senate’s 12-month reprieve and narrowed scope, Section 899 could still significantly reshape how foreign-owned entities are taxed on US income.
In its recent analysis, Pitcher Partners warned Australia is likely to be caught by the bill if it passes, as both versions target countries deemed to have “unfair foreign tax” policies.
The House version labels countries with digital service tax (DST), undertaxed profits rule (UTPR) and diverted profits tax (DPT) as discriminatory. The Senate version, however, relies on US Treasury to enforce some rules and distinguishes between extraterritorial taxes (like UTPR) and discriminatory taxes (like DPT), applying rules differently based on classification.
While the classification is a matter of US law, Pitcher Partners said Australia may need to reassess some measures if they risk triggering punitive US taxes on local investors.
“If it does pass, and Australia is identified as a country with tax practices which are subject to the bill, it will place pressure on the Australian federal government to repeal its own laws so that Australia is not an ‘offending’ or ‘discriminatory’ foreign country. However, as matters stand today, the potential impact of this bill is certainly something that Australian taxpayers with US interests should keep a close eye on,” the firm said.
Earlier this month, AMP’s chief economist, Shane Oliver, highlighted Section 899 as a significant factor eroding confidence in the US as a safe haven for investment. He suggested that global investors may demand higher risk premiums for US assets, including shares, bonds and the US dollar, in response to the proposed tax changes.
“I suspect it’s likely to be a slow burn and US tech and particularly AI dominance will serve as a powerful offset for some time to come. But it means ongoing bouts of high uncertainty and volatility,” he said at the time.
Greg Combet, chair of the Future Fund, also highlighted in a speech to the Committee for Economic Development of Australia earlier this month that Trump’s Big Beautiful Bill – particularly Section 899 – could “potentially and dramatically” increase tax rates for Australian institutional investors such as the Future Fund.
“In combination, these policies and dynamics are making the US a more risky and uncertain investment destination,” he said.
Factors such as the bill are alerting investors that elevated risk demands a higher return on capital and that they may be overweight US assets, Combet added.
Noting that the US will “undoubtedly” continue to offer “many attractive investment opportunities”, he elaborated that the fund is giving further consideration to the medium- and long-term implications and is allocating “more time and resources to investigating other markets”.
“We are considering the need to build the physical portfolio in a more diversified way,” he said.
“To help our asset teams do this, we are reviewing our short and long-term scenarios … It seems unlikely that even dramatic reversals of Trump policies would engender a return to a ‘business as usual’ approach from long-term investors now that investor doubt has been sown.
“And the trend towards deglobalisation, greater geopolitical tensions and multipolarity in world power pre-date President Trump and can be expected to post-date the Trump era. We certainly do not think the dynamics I have spoken of will pass and return the world to the norms of yesteryear.”
