Congress Examines SWFs

In an effort to shed some more light on how sovereign wealth funds (SWFs) are taxed and regulated, Senate Finance Committee leaders last week asked the Joint Committee on Taxation to evaluate current tax rules that apply to SWFs, according to Financial Week.

The lawmakers also asked the nonpartisan committee to closely look at any possible trends in SWF investments, as well as the techniques SWFs use to invest in U.S. companies, and any trends in pension-fund investing, reports FW.

“With increasing U.S. investments being made by (sovereign wealth) funds, we decided we ought to make sure we have a clear understanding of the U.S. rules that apply to these investments," committee chairman Max Baucus (D-Mont.) and Republican Charles Grassley (Iowa), said in a statement.  “This research request will help us understand the role of tax policy in the sovereign wealth fund puzzle.”

SWFs’ passive investment is currently resistant to taxation under section 892 of the Internal Revenue Code, and Victor Fleischer, a finance professor at the University of Illinois last week raised the concept of taxing SWFs at the same 30-percent top rate that is applied to foreign companies as a means to impose transparency and governance guidelines.