Section 891 and the New Front in Geopolitical Risk
For years, professional service firms assumed they were insulated from the brute force of geopolitics. Tariffs were for goods. Trade wars were for commodities. Services operated above the fray—too intangible, too regulated, too essential.
That assumption is now under threat.
The Trump administration seems to be preparing to invoke Section 891 of the U.S. tax code—a largely forgotten provision from 1934 that would double U.S. income tax rates on companies and individuals from countries deemed to be “discriminating” against American business interests.
This isn’t a hypothetical threat. The mechanism exists. The preparatory work has reportedly been done. And several countries—including the United Kingdom—are already in the firing line.
What Is Section 891?
Section 891 authorises the U.S. president to impose double taxation on income earned in the U.S. by entities from countries whose tax laws are considered discriminatory towards U.S. citizens or corporations. It:
- Requires no additional Congressional approval.
- Applies broadly to U.S.-sourced income, regardless of industry.
- Has never been used before—but is now actively under consideration.
Originally conceived in the 1930s as a deterrent against discriminatory foreign tax regimes, the statute has taken on new political life amid intensifying disputes over digital tax policies, global minimum tax rules, and sovereignty in fiscal design.
Why Now?
The trigger appears to be a series of tax measures introduced by many countries that are seen by Washington as disproportionately targeting American tech companies. These include, for example:
- The UK’s Digital Services Tax: A 2% levy on revenues from search engines, social media platforms, and online marketplaces derived from UK users.
- The Undertaxed Profits Rule: Part of the UK’s implementation of the OECD’s Pillar Two framework, it enables HMRC to collect top-up taxes where a multinational’s UK operations are part of a group that pays less than 15% effective tax in another jurisdiction.
- The Diverted Profits Tax (“Google Tax”): Introduced in 2015, this 25% tax targets artificial profit shifting—where profits are routed to low-tax jurisdictions despite the underlying economic activity taking place in the UK.
These rules were designed to modernise tax policy and ensure fairness in the digital economy. But for the Trump administration, they are cast as protectionist, anti-American, and ideologically driven.
Under Section 891, that perception alone may be enough.
More Than Just the UK
While the UK is a high-profile example, it is not alone. Reports suggest that other countries—including France, Italy, Spain, Austria, India, and Brazil—may also be in scope, based on their tax measures or localisation policies.
If designated under Section 891, entities from these countries would face a doubling of their U.S. federal tax rate on affected income. This would apply across all sectors—not just tech.
This makes Section 891 a systemic risk to the global services economy.
Structural Consequences for Global Firms
The potential consequences are severe:
- Firms would face immediate tax exposure on U.S.-sourced income.
- Multinational structures may need to be rapidly reviewed or ring-fenced.
- Professional services—traditionally viewed as resilient and stable—would be drawn into frontline geopolitical risk.
This is not just a tax issue. It is a strategic and reputational fault line.
Section 891 as Political Weapon: The Law Firm Dimension
What elevates this further is how Section 891 might be deployed not just economically, but ideologically.
In recent weeks, U.S. law firms have faced intense political pressure—criticised for:
- Maintaining or defending diversity and inclusion programmes.
- Representing clients adverse to Trump-aligned causes.
- Taking principled stands on voting rights, climate, or rule-of-law issues.
The response from many U.S. firms has been retreat—quietly walking back DEI commitments, shedding controversial clients, “settling” with Trump, and adopting a stance of political neutrality.
From Trump’s perspective, this is instructive. It shows that elite firms are responsive to pressure—especially when financial consequences are involved.
Section 891 offers a way to export that pressure beyond U.S. borders.
Should a global firm’s home jurisdiction be labelled “discriminatory”, the resulting tax implications may:
- Trigger internal conflict within the firm between U.S. and non-U.S. partners.
- Force public distancing from domestic tax policy or human rights positions.
- Undermine credibility with clients in both the U.S. and home markets.
- Encourage firms to self-censor or structurally adjust to avoid further scrutiny.
In effect, Section 891 becomes a means to coerce strategic alignment—turning multinational legal and advisory firms into instruments of leverage in a new kind of values-based trade war.
The End of Services Exceptionalism
For decades, professional services firms operated under the assumption that they were different. Above the fray. Tied together by global norms, licensing reciprocity, and mutual economic interest.
Section 891 may end that era.
It shows that services can be targeted just like steel or soybeans—and that politics, not economic rationale, will determine who gets hit.
It also reminds us that firms built on principles—equality, accountability, integrity—may soon be tested on how much they are willing to defend them when the cost becomes tangible.
What Should Firms Do?
Firms with international footprints—especially those with U.S. exposure—should act now:
- Map exposure to Section 891 by jurisdiction, entity, and income stream.
- Scenario-plan for tax and regulatory impacts under retaliatory designation.
- Review governance structures to prepare for internal misalignment or partner disputes.
- Engage policy-makers and professional bodies early and assertively.
- Communicate with clients about resilience, values, and operational readiness.
Above all, firms must accept that this is no longer theoretical. It is a real and rising threat—one that will test not just operational agility, but strategic courage.
A New Strategic Frontier
Section 891 isn’t about tax. It’s about control.
In the hands of a leader willing to weaponise law for political gain, it becomes a potent tool—used not just to punish foreign governments, but to discipline the global institutions that mediate power, values, and legitimacy.
Global firms—particularly in law and advisory—are no longer spectators. They are becoming arenas in which this geopolitical contest is playing out.
The ones that thrive will be those that can anticipate, withstand, and—when necessary—resist that pressure – with structures, strategy, and integrity.