IRS Proposal Could End Tax Exemptions for Sovereign Wealth Fund Investments in US Private Capital

US authorities proposed a tax reform in December that may require sovereign wealth funds to pay taxes on certain US investments, potentially affecting major backers of the country's private capital industry, BlockBeats reports. The Internal Revenue Service plans to revise Internal Revenue Code provisions that sovereign wealth funds and some public pension funds use to claim US tax exemptions, including broadening the definition of "commercial activities" to cover transactions previously treated as passive investments. Activities that could trigger tax liabilities include direct lending to companies, participation in bond default restructurings, and use of "blockers"—special purpose vehicles typically employed by sovereign wealth and pension funds when co-investing with private equity firms.