The US Senate released a draft tax bill (Senate Tax Bill) on June 16, 2025. We explore five key takeaways for fund sponsors, investors, and the broader asset management community, with a focus on how the Senate Tax Bill compares to the House of Representatives’ version passed on May 22, 2025 (House Tax Bill).
1. Section 899 limits section 892 and treaty benefits for certain foreign governments
The Senate Tax Bill introduces a new section 899 to the Internal Revenue Code, imposing a retaliatory tax on countries that have enacted digital services taxes (DSTs), undertaxed profits rules (UTPR), diverted profits taxes, or other foreign taxes that the Secretary determines are disproportionately borne by US persons.
Unlike the House Tax Bill, the Senate version distinguishes between extraterritorial taxes (such as the UTPR) and discriminatory taxes (such as the DST). Section 899 would deny section 892 benefits to governments of countries imposing either type of tax, but would only increase the withholding rate (by up to 15 percentage points) for countries with extraterritorial taxes. The House Tax Bill would increase the rate by up to 20 percentage points. The Senate Tax Bill also clarifies that these changes would affect certain preferential rates under income tax treaties.
2. Modification of excise tax on certain university endowments
Both the Senate and House tax bills propose changes to the excise tax under section 4968 which applies to certain large private university endowments. The Senate Tax Bill retains graduated rates, based on a university’s “student-adjusted endowment,” but significantly reduces and simplifies the tax structure compared to the House Tax Bill.
The table below shows a brief comparison of the rates.
3. Portfolio interest exemption not subject to section 899
The Senate Tax Bill clarifies that interest payments qualifying for the portfolio interest exemption are not subject to the new section 899 tax.
4. No changes to carried interest taxation
Neither the Senate nor the House tax bill proposes changes to the current tax treatment of carried interest.
5. No change to taxable REIT subsidiary limit; no increase to section 199A deduction
In contrast to the House Tax Bill, the Senate Tax Bill does not change the limit on taxable REIT subsidiaries. The House Tax Bill would allow real estate investment trusts (REITs) to hold up to 25 percent of their assets through taxable subsidiaries, up from the current 20-percent limit.
Both bills propose to make permanent the section 199A deduction for ordinary REIT dividends, but only the House Tax Bill proposes to increase the deduction to 23 percent. The Senate Tax Bill retains the current rate.
We will continue to monitor developments closely and provide timely updates as new information becomes available.
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