In May 2025, the One Big Beautiful Bill Act (OBBBA) was passed by the U.S. House of Representatives (House), which included the proposed Section 899 (House version). Section 899 is a retaliatory tax provision that potentially impacts investors from abroad – including Canada. On June 16, the U.S. Senate released its version of Section 899 (Senate version), which included changes to the initial legislation tabled by the House. 

This article provides a summary of select changes to the legislation and their potential impact on Canadian investors. 

Potential change to applicability

In the House version of the OBBBA, Canada could be designated a “discriminatory foreign country.” If that happens, Canadian investors may have to pay higher specified rates of tax and withholding taxes on income from their American investments. The House version targets countries that, among other things, have a digital services tax (DST) and Undertaxed Profits Rule (UTPR) regime, both of which the U.S. considers unfair. Canada’s DST came into effect in 2024, but its UTPR rules are still in draft legislation.

In the Senate version, only applicable persons ¹  from countries that have enacted an “extraterritorial tax” could face increased U.S. tax rates. Extraterritorial tax includes UTPR but doesn’t include DST. 

Given the differences in applicability between the two versions, it’ll be interesting to see which one becomes law and the scope of its impact (if any) to Canada ² . 

Reduced retaliatory tax rate

In the House version, U.S. withholding tax rates will increase by 5% per year (starting from rates negotiated under existing tax treaties) until they reach 20% above the non-treaty statutory rates. In certain cases, the withholding tax could be as high as 50%.   

In the Senate version, while the increase will still be 5% per year, the maximum increase is capped at 15% above the rate otherwise applicable (treaty or non-treaty). Using dividends as an example, if the current withholding tax under a treaty is 15% ³ , the Senate version would have the maximum increase limited to 30%, whereas the House version could have a maximum rate of 50%. ⁴  

Delayed implementation date

Finally, in the House version, the proposed Section 899 would come into effect in 2026. Whereas in the Senate version, the implementation of the new code section would be pushed to 2027. 

Outstanding issues impacting Canada 

As mentioned, one of the biggest outstanding questions is which version of the OBBBA will become law, and whether its scope will extend to impact Canada. 

If the OBBBA becomes law and is enforceable, there are a few Canadian-specific issues that remain uncertain. In particular: 

1. Other treaty-based exemptions – whether certain exemptions currently in place (for instance, relief to withholding tax on U.S.-listed funds or stocks held in an RRSP) would remain in place or become overridden; and

2. Recovery of foreign taxes paid – whether the additional tax levied by the new proposed rules could also be recovered for Canadian income tax purposes. 

What’s next? 

U.S. President Trump indicated his desire to pass the legislation into law by July 4, 2025. As there are currently several differences (in addition to the ones highlighted above) in the two versions of the OBBBA, there are plenty of hurdles that will need to be resolved before a final version is agreed upon, which may delay its enactment. 

Canadian investors should consult their advisors to determine whether the final legislation could influence their investment strategies. 

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