The Unjustified Subsidy: Sovereign Wealth Funds and the Foreign Sovereign Tax Exemption

35 Pages Posted: 28 Nov 2012  

Jennifer Bird-Pollan

University of Kentucky - College of Law

Date Written: 2012

Abstract

The taxation of Sovereign Wealth Funds in the United States is outmoded and due for reconsideration. Offering a tax exemption to the billion dollar investment funds owned by foreign governments is both unfair and fails to achieve the goals of the foreign sovereign tax exemption. Founded in the principles of sovereign immunity, the foreign sovereign tax exemption, codified in I.R.C. ยง892, 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 illustrates that the current exemption is simultaneously too broad, providing a tax exemption for activities that are clearly non-governmental activities, and therefore outside of the realm of sovereign immunity, and too narrow, failing to provide a tax exemption for activities that clearly are governmental activities. Finally, this 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.

Keywords: Tax, International Tax, Sovereign Immunity, Sovereign Wealth Funds

Suggested Citation

Bird-Pollan, Jennifer, The Unjustified Subsidy: Sovereign Wealth Funds and the Foreign Sovereign Tax Exemption (2012). 17 Fordham Journal of Corporate and Financial Law 987, 2012. Available at SSRN: https://ssrn.com/abstract=2180918

Jennifer Bird-Pollan (Contact Author)

University of Kentucky - College of Law ( email )

Law Building
Lexington, KY 40506

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