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Taxing Sovereign Wealth Funds

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Is US tax law accidentally favoring sovereign wealth funds, giving them an advantage over other investors? Law professor Victor Fleischer says that is exactly what is happening, and advises Congress to amend the tax-code to repeal the loophole that sovereign wealth funds are exploiting.
Fleischer gained attention last year when his paper about the tax treatment of private equity, titled Two and Twenty, caught the eye of Capitol Hill lawmakers and made carried-interest front page news. His latest research paper proposes that allowing sovereign wealth funds to remain exempt from taxes on the principal of sovereign immunity favors sovereign wealth funds over private foreign individuals and funds.
“Encouraging foreign investment in the United States generally increases overall welfare,” he writes on the Congolmerate. “But there is no sound policy reason to unconditionally exempt state-owned investment funds from U.S. taxation, and it is not at all clear that we should give state-owned funds a competitive advantage that crowds out private investment.”
He warns, however, that hasty action to raise taxes on sovereign wealth funds “could be perceived as a protectionist signal that could discourage both state-owned and private foreign investment.” That prediction is hardly outlandish. Already there are many on Capitol Hill who view with suspicion the recent investments in US financial firms by sovereign wealth funds.
Taxing Sovereign Wealth Funds [The Conglomerate]