Several clients have inquired about a little-noticed provision buried within the “One Big Beautiful Bill Act” (OBBBA), which passed the U.S. House of Representatives on May 22^nd and is now under Senate review. In this note we will explore the implications for Canadian investors, with the key takeaways being that:

1. Section 899 could lead to a material increase in withholding taxes on U.S.-sourced dividends
2. Section 899 is likely to become law, but still has a high chance of being avoided for Canadians if the Carney administration can negotiate it away through concessions (like removing the Digital Sales Tax)
3. The impact on our Canadian clients would likely be minimal given we already aim to source very little dividend income from U.S. equities
4. If higher withholding taxes did come into effect, we would mitigate the impact even further by bringing U.S.-sourced dividends down to virtually zero for our Canadian taxable clients

What is Section 899 and why are global investors—particularly Canadian ones—concerned?

In essence, Section 899 seeks to generate over USD 100 billion in new revenue over the next decade, helping fund tax cuts for U.S. taxpayers. To do so, it empowers the U.S. Treasury Secretary to unilaterally designate certain jurisdictions as “discriminatory” based on their tax policies. These policies include:

• Imposition of Digital Services Taxes (DSTs): Particularly relevant for Canada, Australia, and many EU member states.

• Adoption of the OECD’s Undertaxed Profits Rule (UTPR): A core element of the Pillar 2 global minimum tax framework, impacting nearly all G7 and OECD-aligned nations.

• Use of Diverted Profits Taxes (DPTs): Especially applicable to jurisdictions such as the UK and Australia that target profit-shifting to tax havens.

If Canada is deemed “discriminatory”, which we believe is relatively likely, the U.S. could apply a suite of retaliatory measures on Canadians under Section 899. The feature most relevant to Canadian investors is an incremental increase in withholding taxes, up to a final rate of 50%.

Implications for Canadian Investors:

While the provision is ostensibly targeted at tax structures the U.S. deems prejudicial, the practical effect may be to create a climate of heightened uncertainty for foreign investors—particularly those domiciled in treaty jurisdictions such as Canada.

The discretion afforded to the U.S. government in defining what constitutes “discrimination” introduces a further layer of unpredictability. As such, investors may find themselves relying not just on legal arguments, but on the lobbying strength of their governments to avoid punitive designations.

Nonetheless, while Section 899 introduces material uncertainty for many global investors, it’s important to emphasize that our Canadian clients are largely insulated from its first-order tax consequences.

The reason is straightforward: under current Canadian tax law, foreign-source dividends are already fully taxable as ordinary income for Canadian residents. Unlike U.S. taxpayers who benefit from qualified dividend rates or treaty protections, Canadian investors do not enjoy any preferential treatment on dividends from U.S. or other foreign entities.

This tax asymmetry is one of the key reasons why our discretionary equity models have long emphasized Canadian-source dividends, where the dividend tax credit provides significant advantages for taxable portfolios. It’s also why we continue to evaluate U.S. and international equity exposure with a strong focus on total-return optimization, rather than relying on dividend-driven yield from foreign securities. Additional withholding taxes would certainly be unwelcome, but since we already source minimal dividend income from U.S. stocks, the worst-case scenario of a 50% withholding tax on U.S dividends would have very little impact on the after-tax return picture for our taxable Canadian clients.

Of course, institutional clients—such as pension funds or other exempt investors—may face different implications depending on treaty reliance and asset structuring, particularly if U.S. policy overrides existing bilateral agreements.

A Macro Perspective: The Bigger Picture

While we are not tax practitioners and recommend clients consult legal and tax advisors immediately to assess potential exposure, we are confident in our macro interpretation.

Section 899 represents more than a revenue-raising tool. It reflects a broader ideological pivot in U.S. policy: a growing willingness to unilaterally weaponize the tax code against foreign governments and investors. Notably, even the Biden administration has voiced opposition to DSTs, suggesting bipartisan alignment on the underlying sentiment.

Although some market commentary naturally views Section 899 as a negotiation tactic in the global tax arena, we believe one likely outcome in any case is an enduring premium placed on U.S. political and tax risk—whether under the current administration or a future one. Section 899 reinforces a key pillar of our macro thesis: ongoing repatriation of foreign capital from the U.S. as investors diversify exposure and reduce reliance on a jurisdiction increasingly willing to tax foreign capital at will.

In any case, rest assured that even a 50% withholding tax scenario would only have a modest impact on overall return for our Canadian clients, and we would take action to further mitigate this impact if it appeared as though higher withholding tax rates were imminent.

This is not the end of the story—but it may be the beginning of a new chapter in U.S. fiscal nationalism.