{"id":2062,"date":"2026-01-16T08:27:02","date_gmt":"2026-01-16T08:27:02","guid":{"rendered":"https:\/\/diyhaven858.wasmer.app\/index.php\/washington-moves-to-strip-sovereign-wealth-investors-of-us-tax-perk\/"},"modified":"2026-01-16T08:27:02","modified_gmt":"2026-01-16T08:27:02","slug":"washington-moves-to-strip-sovereign-wealth-investors-of-us-tax-perk","status":"publish","type":"post","link":"https:\/\/diyhaven858.wasmer.app\/index.php\/washington-moves-to-strip-sovereign-wealth-investors-of-us-tax-perk\/","title":{"rendered":"Washington moves to strip sovereign wealth investors of US tax perk"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div>\n<p>Unlock the Editor\u2019s Digest for free<\/p>\n<p class=\"article__content-sign-up-topic-description o3-type-body-base\"><span>Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/span><\/p>\n<p><iframe class=\"article__content-sign-up-iframe close\" scrolling=\"no\" id=\"signUpIframe\" data-prev-url=\"\/register\/in-article-sign-up?ft-content-uuid=de1968ab-3db3-4aa6-8489-35e7cdb81be7\"><\/iframe><\/div>\n<div id=\"article-body\">\n<p>US authorities have proposed a shake-up that could make sovereign wealth funds liable for taxes on their American investments, delivering a hit to some of the private capital industry\u2019s biggest backers.<\/p>\n<p>The Internal Revenue Service published proposals in December to redraw a section of the tax code used by sovereign wealth funds (SWFs) and some public pension funds to claim exemption from paying US levies.<\/p>\n<p>The proposed changes are the latest in a series of policy shocks from the Trump administration that have pushed state-owned investors to diversify their exposure away from the US.<\/p>\n<p>Under Section 892 of the US tax code, foreign governments and their controlled entities \u2014 a category that includes SWFs and some public pension funds \u2014 do not pay US tax on what the IRS categorises as investment activity.<\/p>\n<p>But they are liable for tax if they engage in what the IRS deems to be commercial activity.<\/p>\n<p>Under the proposals, the IRS\u2019s definition of commercial would be broadened to include some activities that would previously have been considered investment.<\/p>\n<p>The changes from the IRS would affect instances in which SWFs make loans to companies, as well as when they take direct equity stakes in private firms.<\/p>\n<p>Activities that risk making SWFs liable for taxation under the new proposals would include direct lending to companies and taking an active role in the restructuring of a defaulted bond or loan. <\/p>\n<p>The proposed regulations contained \u201cnew considerations and potential pitfalls\u201d for SWFs, said Jeffrey Koppele, a tax partner at the law firm Squire Patton Boggs. \u201cSovereign wealth investors should review their portfolios.\u201d<\/p>\n<p>The proposals come as US President Donald Trump has taken an increasingly aggressive approach to bolstering the US economy in his second term, by imposing steep tariffs on trading partners and taking stakes in domestic companies such as Intel.<\/p>\n<p>State-owned investors held $550bn of private credit investments globally in 2025. The volume of direct private equity investments made in the US last year more than tripled to $73bn, two-thirds of which consisted of co-investments, according to consultancy Global SWF.<\/p>\n<div id=\"cyriaupg\" class=\"n-content-layout\" data-component=\"flourish\" data-component-id=\"27173843\" data-component-type=\"flourish-in-article\">\n<figure class=\"n-content-picture n-content-layout__container\"><picture data-asset-type=\"flourish\" data-flourish-id=\"27173843\" data-flourish-type=\"visualisation\">\n<div id=\"27173843\" class=\"cp-message o-message o-message--inform o-message--notice\" data-o-component=\"o-message\">\n<div class=\"o-message__container\">\n<div class=\"o-message__content\">\n<p class=\"o-message__content-main\">Some content could not load. Check your internet connection or browser settings.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<p><img decoding=\"async\" src=\"https:\/\/images.ft.com\/v3\/image\/raw\/https%3A%2F%2Fpublic.flourish.studio%2Fvisualisation%2F27173843%2Fthumbnail%3FcacheBuster%3D982524?source=next-article&amp;fit=scale-down&amp;quality=highest&amp;width=1020&amp;dpr=1\" alt=\"\"\/><\/picture><\/figure>\n<\/div>\n<p>As part of the proposals, the IRS is also looking to redraw the tax rules for SWFs that take stakes in private equity portfolio companies. Currently it is possible for an SWF to take a minority stake in such a company without being deemed to engage in commercial activities, as long as they do not have economic or voting control.<\/p>\n<p>But under the proposed changes, the definition of control would be broadened to include the possession of certain investor rights that typically accompany strategic stakes.<\/p>\n<p>The changes could also affect so-called blockers, special-purpose vehicles that are typically used by SWFs and pension funds when they invest directly in portfolio companies alongside private equity companies, through \u201cco-investment\u201d structures.<\/p>\n<p>The blockers shield tax-exempt investors from liability. But the proposed changes could add hefty taxes to any distributions made to SWFs if the blocker is deemed to have \u201ceffective control\u201d of a portfolio company.<\/p>\n<p>That includes having investor protections in place that are normal in private equity co-investments, such as the right to be consulted on exits.<\/p>\n<p>The changes could push SWFs and some public pension funds away from types of direct investing, such as taking a stake in a company alongside a private equity firm, and towards more passive investment structures, such as investing via private capital funds.<\/p>\n<p>About a quarter of state-owned entities\u2019 holdings of private credit assets are the result of direct investments rather than being made through the funds of private market asset managers, according to Diego L\u00f3pez, managing director of consultancy Global SWF.<\/p>\n<p>According to the IRS proposals, taking a role in a restructuring of a company\u2019s debts would be deemed commercial activity even if the SWF had bought the bond many years ago when the prospect of default was small. <\/p>\n<p>\u201cThe proposed regulations, if finalised in their current form, could apply to investments that an SWF has already made,\u201d Koppele said.<\/p>\n<p>Losing Section 892 status could theoretically strip an entire fund\u2019s tax exemptions. However, its exposure will depend on its legal structure, and there are other tax exemptions on which investors can rely, according to lawyers and experts. <\/p>\n<p>The window for comments on the proposals closes on February 13.<\/p>\n<\/div>\n<p><br \/>\n<br \/><a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter. US authorities have proposed a shake-up that could make sovereign wealth funds liable for taxes on their American investments, delivering a hit to some of the private capital industry\u2019s biggest backers. The Internal Revenue Service [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":2063,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_daextam_enable_autolinks":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[10],"tags":[],"class_list":["post-2062","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-news"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/diyhaven858.wasmer.app\/wp-content\/uploads\/2026\/01\/9e586a23-5780-42e1-ad5a-bea6e48189fc.jpg","jetpack_sharing_enabled":true,"jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/diyhaven858.wasmer.app\/index.php\/wp-json\/wp\/v2\/posts\/2062","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/diyhaven858.wasmer.app\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/diyhaven858.wasmer.app\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/diyhaven858.wasmer.app\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/diyhaven858.wasmer.app\/index.php\/wp-json\/wp\/v2\/comments?post=2062"}],"version-history":[{"count":0,"href":"https:\/\/diyhaven858.wasmer.app\/index.php\/wp-json\/wp\/v2\/posts\/2062\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/diyhaven858.wasmer.app\/index.php\/wp-json\/wp\/v2\/media\/2063"}],"wp:attachment":[{"href":"https:\/\/diyhaven858.wasmer.app\/index.php\/wp-json\/wp\/v2\/media?parent=2062"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/diyhaven858.wasmer.app\/index.php\/wp-json\/wp\/v2\/categories?post=2062"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/diyhaven858.wasmer.app\/index.php\/wp-json\/wp\/v2\/tags?post=2062"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}