U.S. Treasury Department makes concessions, plans to revise sovereign wealth fund tax proposal after previous warnings from the private equity industry

The U.S. Department of the Treasury is making concessions on a proposal to overhaul the taxation approach for sovereign wealth funds and public pension funds.

The proposal was previously put forward by the IRS, aiming to update Section 892 of the tax code to classify the majority of U.S. debt investments held by these funds as commercial activities, which would expose them to taxation. Investments not deemed to be commercial activities would not be subject to tax. In addition to reclassifying debt investments and categorizing them as commercial activities, the proposal also plans to revise real estate investment rules and eliminate the veto power these funds currently have over capital expenditures.

Earlier, private credit and private equity firms warned that these reforms could negatively impact foreign investment in the U.S. market.

A spokesperson for the U.S. Department of the Treasury recently stated that officials made the decision after consulting with the investment and real estate industries. “We are revising the proposal to address key issues and ensure it supports stable, long-term capital flows.”

Bryan Corbett, President of the Managed Funds Association, expressed appreciation for the Department of the Treasury’s decision and said his organization looks forward to working with the Trump administration to find solutions.

Data from Global SWF shows that the total assets managed by global sovereign wealth funds and public pension funds exceed $40 trillion, with a significant portion invested in the United States. One of Washington’s leading private equity lobbying groups, the American Investment Council, estimates that by 2025, sovereign wealth funds will contribute approximately 35% to the growth of private equity assets under management.

Risk Warning and Disclaimer

Market risks are present; please invest cautiously. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Invest at your own risk.