The One, Big, Beautiful Bill – the potential tax impacts for New Zealand residents

By Sam Mathews & Harrison Cohen
 

Disclaimer: This article is a generic, high-level summary of the potential tax impacts of the Bill only. The proposals in the Bill are complex, and US tax advice should be sought to fully understand the potential impacts for you and your business.

You’ve probably heard references in the media to “The One, Big, Beautiful Bill” (the Bill) that is making its way through the US legislative process. What you may not be aware of are the potential tax impacts of the Bill for New Zealand groups with US subsidiaries, New Zealanders investing in the US, and New Zealanders doing business in the US. The question is – how big and how beautiful could these impacts be?

So what is the “The One, Big, Beautiful Bill”?

The Bill is a “budget reconciliation bill” that contains a number of proposed legislative changes, including tax changes, spending cuts and welfare reform. Amongst the tax changes is the proposed introduction of new Internal Revenue Code Section 899 which contains a number of provisions designed to retaliate against what the US considers unfair foreign taxes on US companies and their subsidiaries.

A budget reconciliation bill is essentially an expedited process for considering bills that would implement policies included in a Congressional budget resolution.

What does Section 899 do?

Section 899 contains provisions that could increase taxes on persons from a “discriminatory foreign country”. A discriminatory foreign country is a country that, broadly, has what is considered by the US to be an “unfair foreign tax”.

An unfair foreign tax includes a digital services tax (DST) or an undertaxed profits rule (UTPR). The New Zealand government has officially scrapped the DST as part of the recent Budget announcements. The UTPR is part of the Pillar Two rules, which is the global minimum tax of 15% developed by the OECD, the G20, and the rest of the “Inclusive Framework.” New Zealand adopted the Pillar Two rules, including the UTPR, from 1 January 2025.

As such, based on the current rules and wording of the Bill, New Zealand would be considered to be a discriminatory foreign country.

If New Zealand is a discriminatory foreign country, what does this mean?

If New Zealand is a discriminatory foreign country, the Bill (if implemented in its current state) could increase a variety of taxes for New Zealand shareholders and investors into the US, or New Zealanders doing business in the US. Broadly, taxes are scheduled to increase by 5% every year, up to a maximum 20% over the statutory rate.

By way of an example, the gross amount of US dividends received by a New Zealand resident typically bears US tax at a rate limited by the NZ-US double tax agreement to 5% or 15%. The Bill would generally increase the rate by 5% for every year that New Zealand is a discriminatory foreign country, up to a maximum of 50% (which is a 20% increase on the 30% statutory US rate).

US taxes on New Zealand groups with US branches, or New Zealand residents doing business in the US more generally, would also increase in a similar manner.

In addition to this, the BEAT (Base Erosion and Anti-abuse Tax) rules for US companies or groups majority-owned by residents of a discriminatory foreign country are also modified. The BEAT is a minimum tax that is meant to prevent companies operating in the US from avoiding a domestic US tax liability by shifting profits out of the US.  The Bill’s so-called “super BEAT” proposals could apply to non-publicly-held companies or groups (whether US or otherwise subject to US corporate income tax) that are majority owned by New Zealand residents, and could result in additional tax US liabilities for the US (or other US corporate income tax-paying) companies in some instances.

It is worth noting that the increased rates of tax would not apply to income that is explicitly excluded by internal US law from the application of the specified tax. For example, the portfolio interest exemption can exempt New Zealand investors in US debt (e.g. US Treasury Bills), and debt-like investments, from US tax on the income from those investments. This outcome is believed not to be impacted by the Bill in its current form.

When could the Bill become law?

There is a lot of water yet to go under the bridge. The House of Representatives passed the Bill on 22 May and it is now before the Senate. As a budget reconciliation bill, there are certain conditions that must be met for a simple majority in the Senate to be able to pass the Bill. There may be changes to the Bill as it goes through the Senate process, and the Senate would obviously have to pass the Bill. We understand that President Trump is aiming to sign the Bill into law on or before US Independence Day (4 July).

When would the provision apply?

There is some complexity in the potential application date for New Zealand residents, shareholders and investors (which is not covered here), but the rules could apply from as early as 1 January 2026, which obviously isn’t too far away.

Given the significance of these proposed rules on the global tax landscape, there could also be changes to the UTPR/Pillar Two rules which could potentially impact whether countries like New Zealand that have adopted the rules are considered to be discriminatory foreign countries.

Looking ahead

The Bill has the potential to have material tax impacts on New Zealand groups with US subsidiaries or branches, New Zealanders investing in the US, and New Zealanders doing business in the US.

If this is you, you should consider how these changes could impact you, as well as monitoring the progress of the Bill including what (if any) changes are made to the Bill by the Senate, as well as any potential changes to the Pillar Two rules.

If you have any questions or would like to discuss how the Bill could apply to your US subsidiaries, investments or business, please contact your usual Deloitte advisor.