NAHMA Update: Initial Guidance Establishing Qualifying Advanced Energy Project Credit Allocation; Treasury Welcomes Clear Guidance on PillarTwo Global Minimum Tax, Tax Credit Protections

March 1, 2023

Dear NAHMA Members,

 

Please find below two updates regarding:

 

  • Initial Guidance Establishing Qualifying Advanced Energy Project Credit Allocation

 

  • Treasury Welcomes Clear Guidance on Pillar Two Global Minimum Tax, Tax Credit Protections

 

Initial Guidance Establishing Qualifying Advanced Energy Project Credit Allocation

 

The IRS recently published Notice 2023-18 (also attached) to establish a program to allocate credits for qualified investments in eligible qualifying advanced energy projects. The purpose of this notice:

 

  1. This notice establishes the program under § 48C(e)(1) of the Internal Revenue Code (Code) to allocate $10 billion of credits ($4 billion of which may be allocated only to projects located in certain energy communities) for qualified investments in eligible qualifying advanced energy projects (§ 48C(e) program). The goal of the § 48C(e) program is to expand U.S. manufacturing capacity and quality jobs for clean energy technologies (including production and recycling), to reduce greenhouse gas emissions in the U.S. industrial sector, and to secure domestic supply chains for critical materials (including specified critical minerals)  that serve as inputs for clean energy technology production.
  2. This notice and its appendices provide the initial program guidance for the § 48C(e) program. The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) intend to issue a supplemental notice and appendices.
  3. The Treasury Department and the IRS anticipate providing at least two allocation rounds under the § 48C(e) program. For the first allocation round (Round 1) of the § 48C(e) program, which will begin on May 31, 2023, the Treasury Department and the IRS anticipate allocating $4 billion of qualifying advanced energy project credits (§ 48C credits) with approximately $1.6 billion in § 48C credits to be allocated to projects located in certain energy communities. Although the Treasury Department and the IRS intend to allocate a total of $10 billion of § 48C credits with not less than $4 billion of § 48C credits to projects located in certain energy communities over the duration of the § 48C(e) program, depending upon applications received, the Treasury Department and the IRS may not allocate exactly 40 percent of the total § 48C credits allocated in Round 1 to projects located in certain energy communities. To be considered for an allocation of § 48C credits in the § 48C(e) program for Round 1, taxpayers must submit concept papers to the Department of Energy (DOE) by July 31, 2023. Following submission of a concept paper, DOE will encourage or discourage taxpayers from submitting a joint application for DOE recommendation and for IRS § 48C(e) certification (§ 48C(e) application).

 

The IRS will issue additional guidance by May 31, 2023, to provide more details regarding information applicants will be required to submit to request a credit allocation.

 

Treasury Welcomes Clear Guidance on Pillar Two Global Minimum Tax, Tax Credit Protections

 

The Treasury Department announced that the OECD/G20 Inclusive Framework released a package of technical and administrative guidance that achieves clarity on the global minimum tax on multinational corporations known as Pillar Two, and provides critical protections for important tax incentives, including green tax credit incentives established in the Inflation Reduction Act. The guidance was agreed by consensus of all 142 countries and jurisdictions in the OECD/G20 Inclusive Framework and forms part of the common approach under which countries that adopt the rules agree to implement them.  Pillar Two provides for a global minimum tax on the earnings of large multinational businesses, leveling the playing field for U.S. businesses and ending the race to the bottom in corporate income tax rates.

 

The publication of this package follows the release of the Model Rules in December 2021 and Commentary in March 2022, as well as rules for a transitional safe harbor in December 2022.  The newly released guidance provides greater certainty for issues of top concern for U.S. taxpayers and helps sustain incentives critical to achieving Biden-Harris Administration climate goals, and will be incorporated into a revised version of the Commentary that will replace the prior version. The package includes guidance on over two dozen topics, addressing those issues that Inclusive Framework members identified are most pressing. This includes topics relating to the scope of companies that will be subject to the Global Anti-Base Erosion (GloBE) Rules and transition rules that will apply in the initial years that the global minimum tax applies. Also included is guidance on domestic minimum taxes, known as Qualified Domestic Minimum Top-up Taxes (QDMTTs), that countries may choose to adopt.

 

The package of guidance provides certainty on several key issues. Examples include:

 

  • Protection of the Low-Income Housing Tax Credit (LIHTC) as well as green tax credits, including those that were included in the Inflation Reduction Act.

 

  • Clear and administrable treatment of taxes paid under the existing U.S. GILTI global minimum tax regime.

 

  • A consensus statement by all Inclusive Framework members that Pillar Two was intentionally designed so that top-up tax imposed in accordance with those rules will be compatible with common tax treaty provisions.

 

To view the guidance, click here. To view the Treasury press release, click here. To view the OECD press release, click here.