The US is considering "taxing" global sovereign wealth funds, which may trigger a new round of capital outflows

January 16: U.S. authorities have proposed a major reform that would require sovereign wealth funds (SWFs) to pay taxes on their U.S. investments—a move impacting some of the largest players in the U.S. private equity industry. The Internal Revenue Service (IRS) unveiled an amendment to the Internal Revenue Code (IRC) in December of last year, targeting revisions to tax exemption rules for SWFs and certain public pension funds. This marks the latest in a series of policy shifts under the Trump administration, which have already prompted SWFs to diversify their U.S. investment exposure. Under the proposal, the IRS will expand the definition of "business activities" to cover some actions previously categorized as investments. The changes will affect SWFs’ corporate lending and direct equity stakes in private firms. Activities triggering potential tax liabilities include direct corporate loans and participation in bond default restructurings. The revisions may also impact so-called "blockers"—special purpose vehicles (SPVs) widely used by SWFs and pension funds in joint investment structures to directly invest in portfolio companies alongside private equity firms. (Source: Jinse Finance)