IRA Incentives and Pillar Two

Examining Global Minimum Taxation’s Effect on the Green Transition

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The Inflation Reduction Act (IRA) presents a unique opportunity to foster a green transition through its incentives for green investments, and foreign businesses are aiming to earn the Act’s tax credits. However, in parallel, the Organization for Economic Cooperation and Development (OECD) is coordinating the implementation of Pillar Two’s global minimum standard tax rate on multinational enterprises (MNEs) which would allow foreign jurisdictions to impose a top-up tax on these companies if their income tax rate goes below the OECD threshold. Companies utilizing the IRA incentives may find their tax rate decrease below that threshold, which could partially negate the Act’s ability to spur green investments.

While OECD guidance on “direct pay” and “transferable” monetization has provided some relief for corporations hoping to take advantage of the IRA’s incentives, there are still areas of improvement that can be explored. Several actions would help incentivize U.S. investment and job growth, accelerate the green transition, and increase the prospects of U.S. adoption of the OECD framework.

This report is made possible by generous support from the Global Business Alliance.