The US Considers Taxing Global Sovereign Wealth Funds, Sparking Concerns Over Capital Outflows

U.S. authorities have proposed a reform that could see global sovereign wealth funds taxed on their U.S. investments according to analysis. The Internal Revenue Service (IRS) unveiled changes in December 2025 targeting tax exemptions for SWFs and public pension funds as reported. The proposal is part of a broader shift in U.S. policy under the Trump administration according to sources.

The new rules aim to reclassify some investment activities as business operations, making them subject to U.S. taxes. These include direct corporate lending and participation in bond restructuring. The changes could impact how SWFs and pension funds use special purpose vehicles (SPVs) in their joint investments according to analysis.

Spain is set to launch its own sovereign wealth fund, named 'Spain Grows,' with an initial injection of €10.5 billion from EU funds. The fund aims to stimulate growth in sectors such as housing and renewable energy beyond the expiration of EU recovery funds in 2026 as reported.

Why Did the Tax Proposal Happen?

The U.S. proposal is part of a broader policy shift under the Trump administration. This includes a focus on tightening tax rules for foreign entities investing in the U.S. The IRS has sought to close loopholes that allow SWFs to avoid U.S. tax obligations. The changes also reflect concerns about the economic implications of foreign investment strategies.

The U.S. tax reform could impact how SWFs operate in the U.S. market. By expanding the definition of business activities, the IRS is narrowing the scope of investment activities that are exempt from U.S. taxes. This could affect how SWFs structure their investments and use SPVs.

What Are the Implications for the Market and SWFs?

The proposed tax changes may trigger capital outflows from the U.S. as SWFs adjust their investment strategies. Some SWFs may seek to diversify their exposure to the U.S. market in response to the new tax rules. This could impact U.S. private equity and investment vehicles that rely on SWF capital.

The reform could also affect joint investment structures involving SWFs and private equity firms. The changes may discourage SWFs from participating in these structures, especially if they are subject to increased tax liabilities. This could have a ripple effect on the private equity industry and related sectors.

Spain's new sovereign wealth fund is a strategic move to extend the benefits of EU recovery funds beyond 2026. The fund will focus on key sectors like housing and renewable energy. This move reflects a broader trend among countries to establish SWFs for economic stimulus and development according to analysis.

What Are Analysts Watching Next?

Analysts are closely watching how SWFs and pension funds will adapt to the proposed tax changes. The response will depend on the final rules and the extent of the tax liabilities they impose. Some experts believe the changes may not significantly alter SWF behavior, especially if they find alternative investment structures.

The market is also watching how the U.S. tax reform will impact private equity and investment activity. The reform could influence the flow of capital into U.S. markets and affect dealmaking dynamics. Analysts are also monitoring how other countries may respond to the U.S. proposal.

Spain's sovereign wealth fund is expected to be a key player in the country's economic development. The fund's initial focus on housing and renewable energy aligns with broader economic goals. Analysts are tracking how effectively the fund can leverage private debt to achieve its investment targets.