As a core provision of the “Anti-Tax Base Erosion and Abuse Act 2.0,” the U.S. Section 899 Capital Tax Act directly targets the global

challenge of multinational capital shifting profits through tax havens. Its innovation lies in establishing the “Discriminatory Foreign Country

List” (DFC) mechanism, which imposes an additional tax on passive investment income (dividends, interest, royalties, etc.) of entities from

countries on the list.

This move marks a historic shift in U.S. tax policy focus from traditional goods trade tariffs to the regulation of cross-border capital flows,

injecting a disruptive factor into the global tax governance system.

Complete Analysis of the Policy Framework

The Act establishes an unprecedented comprehensive taxation network covering sovereign wealth funds—such as Norway’s $1.4 trillion

pension fund and Abu Dhabi’s $700 billion investment authority—on their U.S. stock dividends; central bank reserve investment returns,

including interest on the European Central Bank’s cross-border loans and Japan’s central bank earnings from U.S. ETFs; cross-border capital

flows of multinational corporations, such as Volkswagen’s profit repatriation, Shell’s dividend payments, and Google’s patent royalties; as

well as high-net-worth individuals with offshore structures holding over $50 million in overseas assets, applying a transparent, piercing

taxation approach.

The tax rate design features a progressive surcharge mechanism that incrementally adds onto existing rates (including treaty benefits) with

a step-up each year—starting at an additional 5% in the first year, increasing by 5% annually, and capping at 20%. For example, under the

U.S.-Canada treaty dividend tax rate of 15%, an entity listed in the DFC in its third year faces an effective tax rate of 30%, doubling the

global minimum and exerting sustained pressure on dividend-dependent capital.

The taxation mechanism triggers automatically once a country is added to the DFC list, without requiring bilateral negotiations. If approved

before October 2025, it will take effect on January 1, 2026. The Congressional Budget Office estimates this will generate an annual tax

revenue increase of $10-15 billion, primarily targeting digital tax dispute parties such as the European Union.

Strategic Upgrade of Trump’s Tariff Policy

The Act continues the “tariff as a tool” logic while achieving a dual evolution.

On one hand, the pressure dimension has been upgraded—from traditional goods trade to capital flows—by undermining foreign investors’

expected returns (with potential DFC-listed countries having already sold off $120 billion in U.S. equities in 2024), compelling target nations

to compromise on key issues like digital taxes and industrial subsidies.

On the other hand, the tax design is more precise, avoiding the broad public impact typical of goods tariffs by focusing on the top 1%

high-net-worth individuals and foreign capital. This approach aims to raise $120 billion in fiscal revenue over the next decade, while aligning

with populist demands to tax the wealthy and building political capital ahead of the 2026 midterm elections.

The Global Tax Governance System Faces a Restructuring Shock

The rule conflicts triggered by the Act have sparked a global wave of countermeasures. The U.S. unilateral approach directly clashes with

the OECD global minimum tax’s “tax neutrality” principle, prompting potential collective retaliation from 136 member countries. The EU has

already initiated legislation for the Capital Mobility Protection Act, Germany plans to tax German government bonds held by U.S. money

market funds, and China may restrict profit repatriation by U.S. banks. These actions significantly raise the risk of a global “retaliatory tax

spiral.”

Capital flow patterns are rapidly reshaping, with three major market responses emerging: regional fund shifts—Singapore’s capital moving

into local REITs and Cayman investment vehicles surging 23%; multinational corporations restructuring—using a “Netherlands-Antilles”

dual-layer structure to convert patent fees, achieving 40%-60% tax savings; and high-net-worth individuals increasing private equity and

crypto asset allocations by 35%, driving intensified SEC regulation.

Implementation Challenges and Political Maneuvering

The Act faces multiple significant challenges.

First, its legal compliance is questionable. The WTO’s Most-Favored-Nation principle may deem the law as discriminatory by country

(drawing on precedents like the steel and aluminum tariffs), and multinational corporations might invoke a 1983 constitutional ruling to file

“treaty rights” lawsuits.

Second, the economic impact is substantial. Sovereign wealth funds could potentially sell $300–500 billion in U.S. Treasuries, pushing up

bond yields and increasing government interest expenses by about $28 billion annually. Meanwhile, U.S. stock dividend yields may drop

from 1.8% to 1.5%, with the additional tax possibly compressing yields further to 1.2%, causing corporate buyback funds to shrink by around

20%.

Finally, political tensions are intensifying. There is fierce bipartisan disagreement over tax revenue allocation (Democrats favoring green

infrastructure investments versus Republicans pushing for tax cuts), raising the risk of politicization of the DFC list. Traditional alliances are

also shifting, with Canada reassessing trade agreements and France threatening reciprocal regulations—marking a rare backlash against

U.S. unilateralism.

What Is the Essence?

This Act essentially serves as the strategic vehicle for “America First 2.0.” Domestically, it shifts the tax burden from 80% of ordinary voters

to 40% of wealth holders, effectively harvesting populist dividends. Internationally, it exploits the breakdown of the OECD framework to

unilaterally set rules, advancing the G7’s dominance over the global tax narrative. On the industrial front, it works in tandem with the Inflation

Reduction Act to increase the cost of foreign capital outflows by 15%-20%, using a mix of incentives and penalties to drive manufacturing

reshoring.

Key future indicators to watch include the Treasury’s transitional arrangements with allies such as the UK and Japan, the progress of

multinational corporations’ structural reorganizations by the end of 2025, and the outcome of the 2026 midterm elections—which could see

tax cuts under a Republican win or intensified levies if Democrats prevail. These factors will directly shape the Act’s implementation and the

global tax landscape.

Conclusion

In response, investors should adopt a cross-regional and cross-asset diversification strategy, reducing U.S. equity exposure to below 70%.

This Act marks the official beginning of a “regulated era” for global capital flows, signaling the end of the golden age of free cross-border

investment.

Market participants must rethink their allocation strategies and seek new equilibrium points amid the ongoing tax disputes between nations.