How a US Tax Provision Could Influence European Firms to Choose American Stock Listings
The recent decision by UK-based fintech company Wise to move its primary stock listing from London to the US highlights ongoing challenges facing the London market, CNBC reports.
A new tax measure embedded in a US spending bill, known as Section 899, may further encourage European firms to follow suit.
Section 899, introduced in President Donald Trump’s spending bill passed by the House of Representatives in May, targets foreign-owned companies headquartered in countries with what the US government deems “unfair foreign taxes.” This provision imposes retaliatory tax measures on corporations from countries that have levies like the Digital Services Taxes or the OECD’s global minimum tax rules. Among the affected countries are most European Union members, the UK, Canada, Australia, and Switzerland.
For publicly traded companies, Section 899 enforces a new withholding tax on US-sourced income for any foreign corporation with over 50% non-US ownership. This tax starts at 5%, increasing annually by 5 percentage points to a maximum of 20%, and applies on top of existing taxes. Analysts at Goldman Sachs estimate that companies in the Stoxx Europe 600 index could see earnings reduced by up to 2% in the first year and as much as 5% over four years due to the provision.
One potential strategy for European firms to avoid these penalties is to increase their US shareholder base through a US stock listing. By doing so, these companies can reduce their non-US ownership to below the 50% threshold, thus removing themselves from Section 899’s reach. According to Goldman Sachs, a US listing offers a direct route to expanding American investor participation. Companies such as consumer credit rating firm Experian and pharmaceutical company Hikma Pharmaceuticals, which have significant US revenue but less than 50% US ownership, could use this approach as well.
However, experts warn that simply relisting in the US may not be sufficient. A senior executive at a major European company noted that the bill’s language includes a vote or value test for US ownership, and even a single day under the threshold could trigger the tax for the entire year. Additionally, identifying beneficial owners — those who control a company — could be difficult, particularly because US fund managers investing on behalf of foreign clients do not count toward the exemption.
Beyond corporate maneuvers, some observers suggest that if European governments were to eliminate what the US labels “unfair foreign tax” policies, their companies would be exempt from Section 899 altogether. Tax expert Pat Brown from PwC US highlighted that Republicans see Section 899 more as a negotiating tool to pressure other countries to amend their tax policies rather than a revenue generator.
This tax provision comes amid an ongoing trend of European and UK companies relocating their listings abroad. Many firms cite a valuation discount for European equities compared to their US peers, along with concerns about liquidity and analyst expertise in London, as reasons to pursue US listings. Since Wise’s London debut in 2021, the UK market has faced skepticism about its ability to attract major tech IPOs and maintain competitiveness. The recent cancellation of a large London IPO by metals investor Cobalt Holdings underscores these challenges.
Despite these trends, the London Stock Exchange Group maintains that London remains Europe’s leading market by capital raised and total market capitalization. They have also noted renewed interest from international companies considering London for future listings.
In summary, Section 899 of the US tax bill could accelerate an existing movement among European firms toward US stock listings.
