US 'Revenge Tax' Repeal: Strategic Opportunities for Australian Superannuation Funds in US Markets

The repeal of the US "Revenge Tax" (Section 899) marks a pivotal moment for Australian superannuation funds, eliminating a major regulatory overhang and unlocking strategic opportunities in US markets. With the threat of punitive withholding taxes removed, Australian investors can now reassess their exposure to US equities, bonds, and infrastructure—sectors poised to benefit from reduced geopolitical friction and improved capital flow dynamics.

The Repeal: A Catalyst for Rebalancing Portfolios

The Revenge Tax, initially proposed as part of the US "One Big Beautiful Bill Act 2025," threatened to impose a 15% incremental tax on income from US assets held by Australian investors. This included dividends, interest, and royalties, with rates escalating up to 50% in severe scenarios. The Association of Superannuation Funds of Australia (ASFA) estimated such a tax could reduce annual returns by 0.1%–0.26%, potentially costing tens of billions of dollars over time on Australia's $450 billion in US investments.

However, the G7's agreement on the OECD Global Tax Deal in June . . . [2025] led to the tax's removal, sparing Australian super funds from these risks. The resolution reflects a broader shift in global tax policy toward multilateralism, as the US prioritized stability over retaliation.

Sector-Specific Opportunities

Technology: A Core Holding with Reduced Risk

The tech sector, a staple of Australian super funds' US portfolios, now faces fewer tax-driven headwinds. With the Revenge Tax gone, funds can focus on the sector's growth potential, particularly in artificial intelligence, cybersecurity, and cloud computing.

Tech giants like Microsoft, Amazon, and Alphabet remain central to US innovation, offering dividend growth and exposure to secular trends. However, funds must still monitor the US Digital Services Tax (DST) tensions, as Australia's News Media Bargaining Code could reignite US retaliation.

Infrastructure: A Safe Haven with Yield

US infrastructure assets—transportation, energy, and utilities—are attractive for their stable cash flows and inflation protection. The Revenge Tax repeal removes a key barrier to investing in sectors like renewable energy projects and public-private partnerships.

Australian super funds, with their long-term investment horizons, can benefit from the Biden administration's push for $500 billion in infrastructure spending under the Bipartisan Infrastructure Law.

Bonds: A Steady Hand in Volatile Markets

US Treasuries and investment-grade corporate bonds remain critical for diversification and liquidity. The removal of the Revenge Tax's threat to sovereign immunity—previously at risk of exposing Australian government entities to US taxes—strengthens the case for holding US government debt.

While rising interest rates pose challenges, the stability provided by the tax repeal could attract more capital to US fixed income, especially as global markets seek safe havens.

Risks Still Lurking

Despite the repeal, two key risks remain:
1. Digital Services Tax (DST) Retaliation: The US continues to oppose DSTs targeting tech firms, and Australia's News Media Bargaining Code could reignite tensions. Funds must monitor US trade negotiations and potential retaliatory tariffs or tax measures.
2. Base Erosion and Anti-Abuse Tax (BEAT): While the Revenge Tax is gone, the BEAT—applicable to Australian multinationals with US subsidiaries—remains in place. Funds invested in such companies should assess their tax exposure.

Investment Recommendations

1. Increase Exposure to US Equities: Prioritize tech leaders with strong balance sheets and secular growth drivers.
2. Expand Infrastructure Holdings: Target projects tied to Biden's infrastructure spending and renewable energy mandates.
3. Maintain a Core Position in US Bonds: Use Treasuries for liquidity and diversification, but hedge against rate hikes.
4. Monitor Geopolitical Risks: Track US-Australia tax negotiations and DST developments to preempt future regulatory shifts.

Conclusion

The repeal of the Revenge Tax has cleared a path for Australian superannuation funds to deepen their US investments. By focusing on tech, infrastructure, and bonds while staying vigilant on tax policy, these funds can capitalize on one of the world's most dynamic economies. The era of punitive "revenge" measures may be over, but strategic agility will remain key to navigating the global tax landscape.

In this new environment, the old adage holds: Location matters—but so does policy.