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1 1 (July 21, 2023)

handle is hein.crs/govemgy0001 and id is 1 raw text is: Con re sY~n I flesedrch Service horujig Aecj have le a~ 'e1914 Updated July 21, 2023 Energy Tax Credits and the Global Minimum Tax The Internal Revenue Code (IRC) (often referred to simply as the tax code) contains a number of credits to encourage certain investments. These include energy credits, some of which were enacted in P.L. 117-169 (commonly referred to as the Inflation Reduction Act of 2022, IRA) and intended to encourage investment in certain renewable energy technologies. (Other major business credits include the research and experimentation, or R&E, credit and the low- income housing credit.) Concurrently, countries around the world are planning to implement a 15% global minimum tax on large multinationals (GLoBE). Tax credits, like the energy credits, lower the effective tax rates on taxpayers that claim them. There were concerns that, under a GLoBE regime, the reduced effective tax rates that result from these energy credits may trigger an additional tax that offsets or eliminates their benefits. Whether an additional tax would apply depends on the nature of the business making the investment, the magnitude and design of the credits, and whether investments are active or passive. Certain credits from passive investments do not affect the tax rate, and the Organisation for Economic Co-operation and Development (OECD) recently released guidance that provides for favorable treatment of transferable credits as well as refundable credits. Energy Tax Credits The tax code includes multiple energy tax provisions- several of which were extended and expanded by the IRA. A brief summary of the changes and a comparison to prior law can be found in CRS Report R47202, Tax Provisions in the Inflation Reduction Act of 2022 (H.R. 5376) (for further information, congressional clients may contact Donald J. Marples). In addition to these changes, the IRA also allowed certain energy credits to be refundable or transferable. Within the context of businesses likely to be subject to the GLoBE regime and other businesses, only selected IRA energy tax provisions are eligible for refundability. Refundability generally allows organizations to treat the amount of the tax credit as a tax payment-with overpayments of tax being refundable. (A broader set of IRA energy tax provisions are refundable to specific types of tax-exempt entities.) If refundability is elected, the tax credits can be claimed for the first five years starting with the year a facility is placed in service, as opposed to a potentially longer period if refundability is not elected. As shown in Table 1, refundability is allowed for three tax credits available to large multinational businesses that may face a global minimum tax. Businesses likely to be subject to the GLoBE regime (along with other businesses) are allowed a one-time transfer of a broader set of tax credits. Any payments received in exchange for the transfer of credits would be excluded from the selling business's income, and any amounts paid to obtain a transferred credit could not be deducted from the recipient business's income. As shown in Table 1, transferability is allowed for 12 tax credits to businesses that may face a global minimum tax. Table I. Selected Energy Tax Credits That May Be Refundable or Transferable for Large Multinational Corporations Refundable Transferable Alternative Fuel Vehicle Refueling Property Credit X (IRC Section 30C) Renewable Energy Production Tax Credit (IRC X Section 45) Carbon Oxide Sequestration Credit (IRC X X Section 45Q) Zero-Emission Nuclear Power Production Tax X Credit (IRC Section 45U) Clean Hydrogen Production Tax Credit (IRC Section X X 45V) Qualified Commercial Vehicles (IRC Section 45W) Advanced Manufacturing Production Tax Credit (IRC X X Section 45X) Clean Electricity Production Tax Credit (IRC Section X 45Y) Clean Fuel Production Tax Credit (IRC Section 45Z) Energy Investment Tax X Credit (IRC Section 48) Qualifying Advanced Energy Investment Tax Credit (IRC X Section 48C)

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