Australian Super Funds Avoid Billions in Losses as US Drops Controversial Tax Proposal
Australian superannuation funds have narrowly avoided a major financial setback following the United States’ decision to scrap a proposed tax hike targeting foreign investors. The move, which would have significantly impacted returns on US-based investments, has been welcomed across the $4.2 trillion superannuation sector.
The controversial measure, known as Section 899 of President Donald Trump’s proposed “One, Big, Beautiful Bill,” aimed to impose up to 15 percentage points in additional tax on foreign entities. The provision was widely viewed as a retaliatory measure against what the US administration described as “unfair taxes” levied by other nations.
On Friday, US Treasury Secretary Scott Bessent announced that Section 899 would be removed from the bill. The decision followed negotiations with the Group of Seven (G7) nations, which resulted in a joint understanding to drop the global minimum tax rate proposed under the OECD’s Pillar Two framework.
“After months of productive dialogue with other countries on the OECD Global Tax Deal, we will announce a joint understanding among G7 countries that defends American interests,” Bessent stated on social media. He confirmed that OECD Pillar Two taxes would not apply to US companies and that the US would work cooperatively to implement the agreement across the OECD-G20 Inclusive Framework.
Australia has been a strong advocate for the OECD’s Pillar Two initiative, which sought to establish a global minimum corporate tax rate of 15 per cent. The goal was to prevent multinational corporations from shifting profits offshore to avoid paying taxes in countries like Australia. The US withdrawal from the agreement presents new challenges for the federal government in its efforts to ensure tax fairness.
Prime Minister Anthony Albanese welcomed the removal of Section 899, noting that he had raised the issue directly with Secretary Bessent during the recent G7 summit in Canada. “This would adversely impact on Australian investment if it had been implemented, particularly on investment from superannuation companies,” Albanese said. He highlighted the importance of the Australia-US economic relationship, referencing a roundtable held earlier this year in Washington DC with Australian investment funds eager to expand their US portfolios.
The relief across the superannuation industry was palpable. With nearly $700 billion in US assets, Australian super funds were particularly vulnerable to the proposed tax. Modelling commissioned by the Association of Superannuation Funds of Australia (ASFA) estimated that the measure could have reduced returns by $3.5 billion over four years.
“This is a really welcome step from the US Treasury Secretary and the superannuation sector is monitoring developments closely,” said ASFA Chief Policy Officer James Koval. He cautioned that while the removal of Section 899 is promising, further legislative amendments are still under consideration.
Treasurer Jim Chalmers also engaged with Secretary Bessent, expressing Australia’s concerns during a phone call last week. “We do not want to see our investors and our funds unfairly treated or disadvantaged when it comes to developments out of the US Congress,” Chalmers said.
Future Fund Chair Greg Combet had previously voiced apprehension about the proposed tax, noting in a June speech that it made US investments less attractive for Australia’s sovereign wealth fund.
Looking Ahead
The removal of Section 899 represents a significant win for Australian investors and underscores the importance of international cooperation in shaping fair and sustainable tax policy. While the broader implications of the US withdrawal from the OECD tax framework remain to be seen, the immediate threat to superannuation returns has been averted.