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The United States House of Representatives last week passed Donald Trump’s One Big Beautiful Bill Act, a voluminous and complex piece of proposed legislation that contains numerous tax amendments that could end up hurting Canadian pension plans and other investors.

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The act includes things such as making permanent certain personal tax rate reductions (which were set to expire at year-end), a permanent estate tax exemption of US$15 million (annually indexed to inflation thereafter), tax exemptions on tips and overtime pay (I’m surprised this is moving forward), increases to state and local tax deductions and a variety of business tax proposals, including immediate expensing for certain capital assets.

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Section 899 of the bill introduces retaliatory tax measures targeting foreign individuals, entities and governments that impose what the U.S. deems “unfair foreign taxes,” such as digital services taxes (DSTs) or global minimum tax top-ups, on U.S. companies.

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If enacted, it would override existing tax treaties and impose significantly higher U.S. tax rates — ranging from five per cent to 30 per cent — on passive income, real property gains and business profits for affected foreign investors.

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For countries such as Canada, the implications could be severe if they fall within Washington’s definition of a “discriminatory foreign country,” or what I refer to as a “bad country.”

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The DST that Canada recently implemented (other countries have, too) is certainly one of the reasons behind Section 899. The U.S., even under Joe Biden, made it clear it believed DSTs implemented by foreign countries unfairly attacked many American companies.

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The U.S. has also not been impressed by the Organization for Economic Co-operation and Development’s push for a so-called global minimum tax, which Canada has embraced. This regime empowers countries to impose top-up taxes on the income of large multinational corporations even if that income was earned and already taxed elsewhere simply because the foreign tax rate was below a 15 per cent global minimum.

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It’s being sold as a fairness measure, but the reality is that it allows high-tax jurisdictions such as Canada to reach beyond their borders and tax profits that have little or no real connection to their economy. It’s no surprise the U.S. sees this as an aggressive tax grab. The Biden administration also had concerns about this.

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Given the above, it would not surprise me if the U.S. targeted Canada. The negative fallout for Canadians would be tremendous. For example, Canadian individuals and entities (corporations, trusts and partnerships) could face increased U.S. withholding tax rates of up to 30 per cent or more on U.S.-source dividends, interest, rents, royalties and capital gains on real estate.

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If you’re a business owner and have U.S. operations through a corporate subsidiary, any dividends paid to a Canadian parent would be targeted. If your U.S. business is directly operated through a Canadian company, you could face higher branch profits tax.

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Some tax geeks reading this will ask: How is that possible? Canada and the U.S. have a tax treaty that limits the rate of withholding tax to something far less than Section 899’s proposals. But the section is designed to explicitly override such treaties if you’re a resident of a bad country.