The U.S. Treasury Department makes concessions and plans to revise the tax proposal for sovereign wealth funds, which was previously warned against by the private equity industry

The U.S. Treasury is making concessions on a proposal for a comprehensive reform of the taxation method for sovereign wealth funds and public pension funds.

The related proposal was previously put forward by the Internal Revenue Service, aiming to update Section 892 of the tax code, classifying most U.S. debt investments held by these funds as commercial activities, which would expose them to taxation risks. Investments not classified as commercial activities are not subject to tax. In addition to adjusting the classification of debt investments and including them as commercial activities, the proposal also plans to revise real estate investment rules, removing a veto power these funds have over capital expenditures.

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

A spokesperson for the U.S. Treasury recently stated that government officials made the decision after listening to feedback from the investment and real estate industries. "We are revising the proposal to address key issues and ensure it is conducive to stable, long-term capital flows."

Bryan Corbett, president of the Managed Funds Association, expressed appreciation for the U.S. Treasury's decision and stated that his organization looks forward to working with the Trump administration to seek solutions.

Data tracking agency Global SWF indicates that the assets managed by global sovereign wealth funds and public pension funds exceed $40 trillion, with a significant portion invested in the U.S. The American Investment Council, one of Washington's major private equity lobbying groups, estimates that sovereign wealth funds will contribute approximately 35% to the total growth of assets managed by private equity by 2025