GCC braces for effects of Trump’s ‘Big, beautiful bill’

• Section 899 of bill in question
• Could deter Gulf FDI in US
• Bill currently in Senate

A proposal under consideration in the US Congress to impose new levies on sovereign wealth funds and other foreign investors is unlikely to harm GCC-based entities directly, experts have told AGBI.

It could, however, have enough of a knock-on effect on the global attractiveness of US assets to convince large Gulf players to reassess their strategies after they pledged trillions of dollars in new investments in the US during President Donald Trump’s trip to Saudi Arabia, the UAE and Qatar last month.

The provision in question encompasses section 899 of the far-reaching fiscal legislation that Trump has dubbed “One big, beautiful bill.” A draft cleared the House of Representatives in May and is currently being discussed in the Senate, its exact fate unknown.

Justin Alexander, director of Khalij Economics, says it is unlikely that the six members of the Gulf Cooperation Council would fall under the definition of “discriminatory” jurisdictions for tax purposes and be targeted by the higher rates.

“If the section has a negative impact on US assets because it deters investments from other countries that are designated, that indirectly impacts GCC investments in the US, both existing ones and future allocation decisions,” he notes.

The draft law sets new revenue and spending levels for the federal government, redirecting resources to meet the policy goals of the White House, like cracking down on immigration.

Section 899, or “Enforcement Remedies Against Unfair Foreign Taxes,” envisions a tool kit for the Treasury Department to hike US taxes upward of 20 percent on foreign pension funds, sovereign wealth funds and other investors hailing from countries that maintain levies deemed to penalise American companies, like digital services taxes.

The push echoes Trump’s similarly retaliatory approach to trade tariffs.

Rachel Ziemba of geopolitical risk advisors Ziemba Insights says GCC states provide few if any examples of the taxes singled out for retribution.

“Nor are there clear elements of US operations linked to GCC owners choosing to declare earnings abroad to avoid US tax, something that happens in pharma and tech in the EU and other jurisdictions,” she adds. 

The ongoing adoption across almost all the GCC of the OECD’s global minimum corporate tax of 15 percent could in theory represent a source of exposure for the region, given the levy is among those listed in Section 899 as automatically rising to the level of “unfair.”

Saudi Arabia has not yet implemented the so-called “Pillar 2”, which has nearly 140 signatory countries at this point, but its corporate tax rate is already at 15 percent.

Alexander of Khalij Economics says the prospect of the US raising taxes on nearly all the world’s investors at the same time seems far-fetched at the moment, though Trump has already demonstrated a willingness to push boundaries.

• Gulf FDI into US states goes well beyond usual suspects
• Looming ‘5 on 10’ crunch will concentrate minds in the Gulf
• To get tech giants to pay their fair share, the taxman needs AI too

Regardless, industry observers agree that regional investors would not be immune to significant shifts in global investment flows as targeted stakeholders rethink their American holdings, with obvious implications for valuations and prices.

Some of the world’s largest companies with operations in the US are lobbying senators to scrap or significantly revise Section 899 as they raise the spectre that, if implemented, it might ultimately cause the loss of millions of domestic jobs.

If, how and when the provision or even the larger fiscal bill may come out of the US Senate remains to be seen.

Meanwhile, GCC investors will remain focused on the larger policy environment out of Washington, according to Ziemba.

This ranges from the continued impact of tariffs, to the roll-out of a pilot programme to streamline national security reviews of inbound FDIs, to possible restrictions the White House may seek on outbound American investments.

“All these macro trends and policy implementation will be important drivers,” she says.