Friday, September 30, 2011
The taxation of Sovereign Wealth Funds in the United States is outmoded and is due for reconsideration. Offering a tax exemption to the billion dollar investment funds owned by foreign governments is both unfair and inefficient. Founded in the principles of sovereign immunity, the foreign sovereign tax exemption, found in § 892, fails to satisfy the Congressional goals that motivated its creation. This article explains the current taxation of foreign sovereigns and, by extension, Sovereign Wealth Funds. It then goes on to illustrate that the current exemption is both too broad, providing a tax exemption for activities that are clearly non-governmental activities, and therefore outside of the realm of sovereign immunity, and simultaneously too narrow, failing to provide a tax exemption for activities that clearly are governmental activities. Finally, the article explains that any exemption provided to foreign sovereigns should be offered only as a treaty matter, reserving the privilege as a negotiation tool, and thereby ensuring that the United States receives similar benefits in return.