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Peter R. Merrill is a senior adviser in national economics and statistics; Karl Russo is the national economics and statistics leader; Aaron Junge is a partner in international tax services; and Damien Boudreau is U.S. tax accounting services leader with PwC LLP. Florian Holle is a senior manager in international tax services, with PwC Germany. The authors thank Pat Brown, Will Morris, Drew Lyon, Jennifer Schiellack, Judy Yao, and Ege Berber for their contributions to this article.
In this article, the authors examine how tax credits would be treated under the OECD’s pillar 2 proposal.
Copyright 2023 PwC LLP.
All rights reserved.
- I. Overview of Global Minimum Tax
- II. Credits: A Reduction in Income Tax?
- III. Policy Issues: Analysis
- IV. Cost of Converting U.S. Tax Incentives
- V. Conclusion
- Appendix
Since 2018, over 130 members of the OECD inclusive framework on base erosion and profit shifting have sought to develop a global solution to the tax challenges arising from digitalization, based on a two-pillar approach.1 The second pillar seeks to strengthen the ability of countries to tax profits of a multinational entity when another jurisdiction with taxing rights applies a low or zero effective tax rate to those profits.2 Specifically, the pillar 2 model rules provide a framework for countries that wish to adopt a 15 percent minimum tax on profits, whether or not the profits relate to digital business models.
Under pillar 2, the home country of an MNE may impose a top-up tax (referred to as the IIR, formerly known as the income inclusion rule) on the parent company to the extent the effective tax rate on income earned in any foreign jurisdiction is less than 15 percent. If a top-up tax is not imposed under the IIR, any country where the MNE has foreign operations may impose a backup top-up tax (referred to as the UTPR, formerly the undertaxed profits or undertaxed payments rule) on its pro rata share of the income (determined based on the location of employees and tangible assets).3 The UTPR is intended to prevent countries from competitively advantaging their resident MNEs by refraining from imposing the IIR.
The UTPR applies not only to the low-taxed income of an MNE’s foreign affiliates but also to income earned in the MNE’s home country. Thus, the UTPR allows other countries to tax income earned by a parent company in its home country if not otherwise subject to a pillar 2 ETR of at least 15 percent. As a result, the UTPR can nullify tax incentives provided by the home country to promote domestic research and development, low-income housing, clean energy, recovery from economic downturns, and other important economic, social, and environmental objectives.4
For purposes of determining the ETR, the model rules distinguish between qualified refundable tax credits (QRTCs) and other income tax credits. QRTCs are treated as government grants, that is, an increase in pretax income (or a reduction in pretax loss), while other income tax credits are treated as a reduction in tax liability. Consequently, QRTCs may reduce the ETR by less than other credits and thus may result in less top-up tax. Special rules also are provided for qualified flow-through tax benefits (QFTBs) in recently released administrative guidance.5
The distinction between QRTCs and other tax credits is important for tax policymakers to consider in the design of tax incentives and for MNEs in scope of pillar 2 to consider in determining the timing, location, and amount of activities eligible for income tax incentives, such as R&D.
Section I of this article briefly summarizes the pillar 2 model rules and examines how they account for different types of tax credits. Section II compares the treatment of tax credits under the model rules with analogous rules in the financial accounting literature and the U.S. foreign tax credit regulations. The treatment of two new types of U.S. income tax credits enacted in the Inflation Reduction Act of 2022 (IRA, P.L. 117-169), that is, direct-pay and transferrable credits, also are discussed. Section III assesses the differential treatment of QRTCs and nonqualified tax credits from a policy perspective. Section IV estimates the potential revenue cost to the U.S. Treasury of converting general business tax credits and other federal income tax incentives to QRTCs. The article concludes in Section V. References to QRTCs and QFTBs in the pillar 2 model rules, commentary, and administrative guidance are contained in the appendix.
I. Overview of Global Minimum Tax
A. Introduction
As of November 2021, 137 jurisdictions had agreed to a two-pillar solution to address tax challenges arising from digitalization and globalization of the economy under the inclusive framework.6 For signatories of a new multilateral convention, pillar 1 would reallocate taxing rights for a portion of residual profits of about 100 large multinationals. Pillar 2 provides a framework for countries that wish to adopt a 15 percent minimum tax on the nonroutine profits of large MNEs.
On December 20, 2021, the OECD published model rules to serve as a template for countries that wish to adopt the pillar 2 global minimum tax.7 The global minimum tax rules may come into force in some countries as early as January 1, 2024, but possibly with delays for the UTPR. On March 14, 2022, the OECD published a commentary providing technical guidance on the pillar 2 model rules as well as a number of examples.8 These will be updated over time; for example, new administrative guidance was published February 2, 2023.9
On December 22, 2021, the European Commission presented a draft directive10 for the uniform implementation of the global minimum tax in the EU. On December 15, 2022, the EU Council formally adopted the EU minimum tax directive by written procedure.11 The directive calls for the IIR to be effective in each of the 27 EU member countries for accounting periods beginning as of December 31, 2023, and the UTPR to be effective for accounting periods beginning as of December 31, 2024.
The pillar 2 model rules, also referred to as the global anti-base-erosion (GLOBE) rules, are summarized below.
B. Top-Up Tax Calculation
In general, the 15 percent minimum tax is assessed through a top-up tax that is imposed on a country-by-country basis for companies in scope of pillar 2. The top-up tax in any jurisdiction is equal to the excess of 15 percent over the ETR multiplied by GLOBE income less a substance-based income exclusion (SBIE). The SBIE phases down to 5 percent of payroll and tangible assets (from 10 percent and 8 percent, respectively) and is intended to focus the minimum tax on “excess income,” such as intangible income, which is presumed to be more susceptible to profit shifting.12 The components of the top-up tax calculation are discussed below.
1. Scope
The model rules apply to an MNE group that has consolidated revenue of more than €750 million in at least two of the last four years. In principle, this threshold corresponds to the relevant size for the CbC reporting requirement in BEPS action 13.13 There are harmonized rules for exchange rate translation of the monetary thresholds in the model rules. Not included in the scope of the model rules are government units, international organizations, nonprofit organizations, pension funds, investment funds, and real estate investment vehicles that are the ultimate parent company of a multinational group.
An MNE group of companies is defined in article 1.2.1 of the GLOBE rules as any group in which at least one entity or permanent establishment is not located in the jurisdiction of the ultimate parent entity (UPE). The UPE is defined as an entity that directly or indirectly holds a controlling interest in any other entity in such a way that it controls the other, and is not owned, with a controlling interest, directly or indirectly, by another entity. An MNE group consists of all entities that are included in the consolidated financial statements or are to be included in principle but are not actually included for reasons of size or materiality or because the company is held for sale. Furthermore, a PE is considered to be a constituent entity (CE) of an MNE group and is treated separately from its parent company or other PEs.
2. GLOBE Income or Loss
The starting point for determining GLOBE income is the stand-alone financial accounting results of the respective CE (article 3.1.1), adjusted to the group accounting standard of the UPE. In addition to the international financial reporting standards (IFRS), other standards are accepted as equivalent, including the generally accepted accounting principles of China, India, and the United States. Some local accounting standards that are applied in the country of domicile of the UPE also are accepted if these do not lead to material distortions.
3. Adjusted Covered Taxes
The definition of adjusted covered taxes starts with income taxes per the income statement of the financial accounts and then makes adjustments.14 In determining the taxes to be taken into account, in general, changes in taxes recognized in equity or in other comprehensive income are excluded.
Article 4.3 contains rules for the allocation of taxes to PEs, fiscally transparent companies, and hybrid companies. Rules also are provided for allocating taxes imposed under controlled foreign corporation regimes, taxes on distributions between parent companies and subsidiaries of the group, and taxes levied on passive income. These rules were further clarified, particularly regarding U.S. global intangible low-taxed income rules, by the administrative guidance.15
The recognition of deferred taxes is the principal mechanism the GLOBE rules use to address temporary differences and to prevent additional top-up tax solely as the result of book-tax timing differences. The starting point is the total amount recognized in financial statements. However, changes in deferred taxes must be recalculated at the 15 percent minimum tax rate if the applicable tax rate is greater. Also, deferred taxes are increased by:
the amount of unrecognized or unused accruals paid during the fiscal year;
the amount of any deferred tax liability established in a previous fiscal year and paid during the fiscal year; and
optional recognition of deferred tax assets on a GLOBE loss;
and decreased by:
the amount resulting from the recognition of a deferred tax asset for a current-year tax loss if it was only not recognized because the recognition criteria were not met; and
recognized deferred tax liability that is not paid within the five subsequent fiscal years unless a recapture exception applies (for example, cost recovery allowances for tangible assets).
Also, tax credit carryforwards that are recognized as deferred income tax assets under the relevant financial reporting model are not considered in the change in deferred tax balances for purposes of determining covered taxes under pillar 2. Accordingly, for credit carryforwards that generally are accounted for as part of income tax expense or benefit (for example, nonrefundable U.S. research credits), any impacts to pillar 2 outcomes generally will only occur in the year the credit is monetized against current tax obligations, and not in the year that the credit is recognized as a deferred tax asset for financial accounting purposes.
4. Calculation of ETR
To determine the ETR in a jurisdiction, the total amount of the adjusted covered taxes of all group entities domiciled in that jurisdiction is divided by the net GLOBE income of these entities (article 5.1.1).
The model rules distinguish between QRTCs and other credits. This distinction has a significant impact on the ETR because QRTCs increase the denominator of the ETR (that is, GLOBE income) and other income tax credits decrease the numerator (that is, adjusted covered taxes). In effect, QRTCs are treated as items of income rather than reductions of taxes.
The following simplified example illustrates the different treatment of QRTCs and other tax credits: A CE has GLOBE income of 1,000 (without consideration of any impacts of refundable credits) and pre-credit tax expense of 200, and qualifies for a tax credit of 100. If the credit is a QRTC, the ETR (under the pillar 2 model rules) is 18.2 percent (200/(1,000 + 100)); however, if the credit is not a QRTC, the ETR is 10 percent ((200 - 100)/1,000).
5. Calculation of Top-Up Tax
If the resulting ETR for a jurisdiction is below the 15 percent minimum tax rate, the top-up tax percentage is calculated as the difference between 15 percent and the ETR. The top-up tax percentage is multiplied by GLOBE income reduced by the SBIE (article 5.2). The top-up tax is increased by the additional current top-up tax (in the case of adjustments for previous years), if any. Finally, if the jurisdiction imposes a qualified domestic minimum tax, the top-up tax is reduced by this amount. For purposes of assessment, the top-up tax for a jurisdiction is allocated among the resident CEs.
C. Collection of Top-Up Tax
The model rules include three charging provisions to levy top-up tax:
the IIR, article 2.1;
the UTPR, article 2.4; and
the qualified domestic minimum top-up tax (QDMTT), article 5.2 in connection with article 10.1.1).
1. IIR
Under the IIR, the UPE is required to pay the top-up tax in proportion to its attributable share of a low-taxed CE. There are exceptions for partially owned parent entities, in which case it is stipulated that the UPE is the tax debtor for the additional tax for the whole MNE group. If the country of residence of the UPE has not implemented the IIR, the IIR is to be applied at the level of the next intermediate parent company in the shareholding chain.
2. UTPR
The UTPR operates as a backstop to the IIR. Article 2.5 of the model rules codifies (with exceptions) that the UTPR applies only to the extent the top-up tax cannot be imposed on a lower-taxed CE through a qualified IIR. Accordingly, the total amount of additional tax that must be levied using the UTPR first must be determined for an MNE group. This then must be allocated to the individual jurisdictions that have implemented a UTPR.
The amount of top-up tax allocated to a jurisdiction is to be collected through the group entities located there. This is to be done indirectly via the disallowance of deductions for business expenses or by making a comparable adjustment under national law, such as the imposition of withholding tax. If it is not possible to levy the complete additional tax of a year in this way, the missing amount is to be carried forward to the following fiscal years and levied analogously.
3. QDMTT
A QDMTT allows countries to impose top-up tax on the exclusively domestic income of CEs of MNE groups in scope of pillar 2. The application of a QDMTT can prevent the levying of a top-up tax on these domestic profits in other countries through either their IIR or UTPR. QDMTTs must be integrated into the respective national laws and administered accordingly. It is not mandatory to use the same accounting standard for QDMTT purposes as for the consolidated financial statement, but the excess profit is to be calculated according to the model rules. The OECD administrative guidance provides further clarification on the design of QDMTTs. In contrast to the calculation of the IIR and UTPR, tax paid or incurred by a CE owner under a CFC tax regime that is allocable to a domestic CE (under article 4.3.2(c) of the model rules), and tax paid or incurred by a main entity that is allocable to a PE located in the jurisdiction(under article 4.3.2(a)), cannot be taken into account in the calculation of the QDMTT.16
The qualification of a tax as a QDMTT has significance regarding the determination of the top-up tax. If a tax is a covered tax, it is taken into account for the determination of the ETR. However, if the tax is a QDMTT, it directly reduces the amount of top-up tax (article 5.2.3).
II. Credits: A Reduction in Income Tax?
As discussed, the model rules treat QRTCs differently than other income tax credits. If pretax income is positive, QRTCs reduce the GLOBE ETR by less than other credits. As a result, treatment of an income tax credit as a QRTC may result in less top-up tax for a company in scope of pillar 2, even if the effect on the non-GLOBE tax liability of the company is the same as a non-QRTC.
The question of whether an income tax credit should be treated as income or a reduction in taxes arises not only for purposes of pillar 2, but also for financial reporting and for determining the amount of foreign tax eligible for the FTC under U.S. income tax regulations.
This section of the article compares the rules for distinguishing income tax credits that are treated as income versus tax reductions under (1) the model rules and commentary, (2) the financial accounting standards, and (3) the U.S. income tax regulations regarding the FTC.
A. Model Rules and Commentary
1. In General
As described above, a QRTC is a refundable tax credit that meets requirements prescribed in the model rules and further explained in the commentary. While the relevant language in the model rules (article 3.2.4) is brief, the scope of the QRTC is elaborated in the definitions17 and commentary.18 For a credit to qualify as a QRTC, the credit must satisfy the following four requirements.
a. Refundability
A QRTC is a government subsidy that is provided in cash or equivalent form to the extent the taxpayer has insufficient tax liability to use the full amount of the credit, that is, it is refundable. The commentary explains that the term “cash equivalent” in this context includes checks and short-term government debt instruments as well as any item treated as a cash equivalent under the financial accounting standard used in the consolidated financial statements. Importantly, cash equivalent includes use of a credit against a tax other than a covered tax. A credit that is only available to reduce covered taxes does not meet the refundability test. A tax credit that is refundable in part is a QRTC to that extent. If a tax credit regime allows taxpayers to elect to receive a credit in a manner that is refundable, the credit is considered refundable (to the extent of the refundable portion), whether or not any taxpayer elects refundability.
b. Timing
The payment of cash or the act of making a cash equivalent available must occur within four years from when a CE satisfies the conditions for receiving the credit under the laws of the jurisdiction that is providing the credit.
c. Exclusions
A QRTC does not include any amount of tax creditable or refundable under an imputation credit regime (that is, a credit allowable to shareholders for corporate income tax deemed paid on their behalf). Also excluded are ordinary refunds of tax paid in a prior period resulting from an error in the computation of tax liability.
d. Practical Significance Test
The commentary requires that credits are in substance, and not merely in form, likely to be refunded. If the design of the tax credit regime intends the credit to never exceed any taxpayer’s liability, this requirement will not be met. Even if the regime does not include this intentional feature, if the design of the regime de facto results in the credit never exceeding any taxpayer’s liability, the requirement will not be met. The commentary phrases this requirement as the refund mechanism having “practical significance” to taxpayers. The determination of whether this requirement is met entails an assessment of the credit regime as a whole rather than on a taxpayer basis. This determination would be based on empirical and historical data regarding the whole tax credit regime, which taxpayers may not be able to access.
2. Qualified Flow-Through Tax Benefits
The recently published administrative guidance includes a special rule for QFTBs. The rule neutralizes a portion of nonrefundable tax credits (credits that do not reduce the adjusted covered taxes accounted for in the ETR calculation). QFTBs are, in general, tax benefits derived through investments accounted for under the equity method or tax-transparent entities that are consolidated. According to the guidance, the rule only applies: (1) “where, at the time of the investment, the investor’s expected return on the Ownership Interest would not be positive in the absence of the expected non-refundable credits; and” (2) “to the extent the Qualified Flow-through Tax Benefits constitute a return of all or part of the investor’s investment.” Unlike QRTCs, QFTBs are not treated as GLOBE income (that is, they do not increase the denominator of the ETR calculation).
The rule would appear to apply to common U.S. tax equity investment structures used to finance projects eligible for renewable energy credits and the low-income housing tax credit (LIHTC), in which the tax credit is an essential component of the expected return on the equity investment. The special rule does not, however, provide a complete exclusion for credits derived through equity-method investments and is not applicable to transferrable credits that are monetized outside of tax equity investment structures.
3. Transition Rule
Article 9 of the model rules and the administrative guidance provide a number of transition rules including with respect to the treatment of nonrefundable tax credits created before the transition year (that is, the first accounting period for which the MNE group falls within the scope of the GLOBE rules, which is expected to be 2024 for those that already meet the thresholds and do not use the transitional CbC reporting safe harbors). Deferred tax attributes related to pre-GLOBE-period tax credits may be carried forward into the GLOBE rules, but must be recast at the lower of the minimum rate (15 percent) and the domestic tax rate at which the credit was recorded (a simplified rule applies for FTCs). Thus, the reduction in adjusted covered taxes from the use of pre-GLOBE-period credit carryforwards will be offset by a reduction in deferred tax assets in the same proportion as 15 percent is to the tax rate at which the credit was recorded (but not more than 100 percent).19
4. Issues Not Addressed
The model rules and commentary do not address the treatment of tax benefit transfer arrangements. These are transactions in which a taxpayer effectively sells tax credits for use by another taxpayer. The transfer may occur directly where permitted (for example, the transferrable green energy credits enacted in the IRA) or indirectly through a lease or a partnership.
The administrative guidance, however, provides special rules for QFTBs, which are one type of tax benefit transfer arrangement. Tax-equity investments arrangements commonly used for renewable energy credits and for low-income housing credits may qualify as QFTBs.
For example, if a utility cannot use an income tax credit for investment in a wind power station a partnership may be created to acquire the asset, and under the terms of the partnership agreement, the utility receives the pretax income from the investment and the tax equity partner receives the tax credits.20
The treatment of tax benefit transfer arrangements that do not meet the requirements for QFTBs is unclear. For example, a utility that cannot use income tax credits for renewable energy property may instead lease the property from a lessor that is able to use the credit, passing on some or all of the value of the credit to the lessee in the form of reduced rent.21 In such arrangements, the question arises as to whether the seller’s income that is attributable to the transfer of tax benefits is treated as income or a reduction in taxes and whether credits claimed by the buyer are treated differently than they would be absent a tax benefit transfer transaction.
The model rules also do not address the direct-pay credits enacted in the IRA. Taxpayers that elect direct pay forgo the tax credit in exchange for an increase in the taxpayer’s deemed estimated tax payments. An increase in estimated tax payments either reduces the amount of income tax otherwise payable, without reducing tax liability, or may result in a refund. A direct-pay credit therefore would meet the requirement that a QRTC be payable in cash or equivalent.
B. GAAP and IFRS
1. U.S. GAAP Considerations
From a U.S. GAAP perspective, while credits and incentives often arise in the tax laws and may be claimed on a tax return, they may not be within the scope of Accounting Standards Codification (ASC) 740. A number of features can make them more akin to a government grant or subsidy. Therefore, each credit or incentive must be analyzed to determine whether it should be accounted for under ASC 740 or whether, in substance, it constitutes a government grant and, thus, is subject to other guidance outside the income tax accounting framework.
The application of income tax accounting is warranted if a particular credit or incentive can be claimed only on the income tax return and can be realized only through the existence of taxable income. If there is no connection to income taxes payable or taxable income and if the credit is refundable regardless of whether an entity has an income tax liability, the benefit should be accounted for outside the income tax model and presented within pretax income.
A credit that is accounted for within the scope of the income tax accounting standard, such as a nonrefundable research credit, will be reflected as an income tax benefit. To the extent a credit is not used in the current year but may be carried forward, a deferred tax asset will be established. Finally, if a deferred tax asset is established, under U.S. GAAP, an entity must assess whether it is more likely than not that the benefit from the credit will be realized. To the extent it will not, a valuation allowance would be recorded in whole or part.
While the general accounting guidance applies to most tax credits under U.S. tax law, within U.S. GAAP there are special rules regarding investment tax credits and LIHTCs.
2. Investment Tax Credits
An ITC22 generally is a nonrefundable tax credit tied to the acquisition of an asset, and it reduces income taxes payable. An ITC typically is determined as a percentage of the book cost of the asset. In some instances, it may reduce the tax basis of the asset.
What differentiates ITCs from other income tax credits and from grants is not always easy to discern because they often share at least a few characteristics.
ASC 740 provides two acceptable methods to account for an ITC:
The deferral method, under which the tax benefit from an ITC is deferred and amortized over the book life of the related property.
The flow-through method, under which the tax benefit from an ITC is recorded in the period that the credit is generated. The ITC is a current income tax benefit under the flow-through method.
As specified in U.S. GAAP, the deferral method is preferable, although both are acceptable. The use of either method is an accounting policy election that should be consistently applied.
When the deferral method is elected, there are two acceptable approaches to account for the ITC benefit. The application of either approach represents an accounting policy election that should be consistently applied.
The first approach recognizes the tax benefit from an ITC as a reduction in the book basis of the acquired asset and thereafter reflects the benefit in pretax income as a reduction of depreciation expense, and there is no reduction in tax expense.
Under the second approach, a deferred credit is recognized when the ITC is generated. The deferred credit is amortized as a reduction to the income tax provision over the life of the qualifying asset. The presentation on the income statement under this approach is similar to the flow-through method in that the ITC benefit is reported within the income tax provision. However, unlike the flow-through method, which recognizes the full benefit of the ITC in the period it is generated, the second of the two deferral methods recognizes the benefit over time based on the productive life of the asset.
Table 1 summarizes the acceptable methods for accounting for ITCs under U.S. GAAP.
Accounting Method | Financial Statement Line Item | Timing of Recognition |
---|---|---|
Deferral method | Pretax income | Over the life of the qualifying asset |
Deferral method | Income tax provision | Over the life of the qualifying asset |
Flow-through method | Income tax provision | In period the credit is generated |
Importantly, the flow-through method may result in a greater reduction to an ETR reconciliation as compared with the deferral method because the tax benefits of the flow-through method are recognized immediately and not over the life of the property. Moreover, some approaches available for the deferral method recognize an ITC as part of pretax income, as opposed to an income tax benefit, lessening the reduction in ETR.
3. ITCs Through Equity-Method Investments
For an ITC received in conjunction with an investment accounted for under the equity method,23 there is no specific guidance on how to account for the respective benefit under U.S. GAAP. Therefore, an investor first must look to guidance for a similar transaction or event within U.S. GAAP and apply that guidance by analogy.
If, for purposes of accounting for its equity method, a reporting entity has elected the fair value option,24 we believe the flow-through method should be applied for an ITC because it aligns with the reporting entity’s election to reflect the fair value of the investment and will result in the benefit being recognized in the income tax provision. In other instances, the deferral approach has been used in practice based on analogy to other types of assets and the recognition of the benefit will depend on the approach used.
4. Low-Income Housing Tax Credits
The LIHTC25 is a nonrefundable tax credit under U.S. federal tax law for owners of qualified residential rental projects.
LIHTCs commonly arise through an investment in a limited liability entity that invests in qualified residential projects. A question arises as to whether the pretax results of the limited liability entity’s activities should be presented separately from the tax benefits that also are passed through to the investor and usable on the investor’s tax return. The determination of the treatment depends on the qualification of certain conditions as well as the investor’s election.
If an investor meets the following conditions, an election may be made to use the proportional amortization method:
it is probable that the tax credits allocable to the investor will be available;
the investor does not have the ability to exercise significant influence over the operating and financial policies of the limited liability entity;
substantially all the projected benefits are from tax credits and other tax benefits (for example, tax benefits generated from the operating losses of the investment);
the investor’s projected yield, based solely on the cash flows from the tax credits and other tax benefits, is positive; and
the investor is a limited liability investor in a limited liability entity for both legal and tax purposes, and the investor’s liability is limited to its capital investment.
By electing the proportional amortization method, the investor amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit).
If an investor does not qualify for the proportional amortization method or forgoes the election, the investment is accounted for under the equity method26 or cost method27 of accounting. The pretax effects of the investment would be reported in pretax income, and the benefits from any LIHTC that are passed through to the investor would be reported in the income tax provision. Given the differences between these two outcomes, a company’s ETR reconciliation will be affected by the availability of the proportional amortization method, as compared with investments that do not qualify.
The Financial Accounting Standards Board issued an exposure draft in August 2022 with a proposal that would permit companies to elect to account for tax credit investments using the proportional amortization method, regardless of the type of credit program (that is, not limited to LIHTCs), if all five conditions for use of the proportional amortization method are met. Two of the key criteria that may be more difficult for some of the more broad-based credit programs to meet are: (1) substantially all benefits are derived from the tax benefits (meaning credits plus any flow-through losses); and (2) the yield from just the tax benefits has to be positive. On January 18 the board ratified the final consensus reached on this project and directed the FASB staff to draft a final accounting standards update reflecting the final consensus for vote by written ballot.
5. Direct-Pay and Refundable Credits
The direct-pay election that is available for eligible taxpayers for some green energy credits under the IRA treats tax credits as estimated tax payments and may result in a refund. As noted, regardless of the method a reporting entity chooses to monetize the benefit, the accounting would be outside the scope of income tax accounting standard under ASC 740 if there is no direct linkage to a reporting entity’s taxable income.
However, there may be some exceptions. For example, if the method of monetizing the benefits could result in significantly different taxation of the benefit, the method of monetization may affect the accounting for these benefits. If, for example, a company will be taxed by a jurisdiction if it claims a refund for the credit but not taxed if it reflects the credit through the income tax return, it may be appropriate to reflect the credit in accordance with the income tax accounting model under ASC 740 if the impact of the incremental tax would be significant and the company intends to reflect the credit on the income tax return.
When credits are not accounted for under the income tax model in ASC 740, a reporting entity will need to determine the appropriate accounting framework to apply. Although the FASB has an active project on its agenda on the accounting for government assistance, there is no guidance in U.S. GAAP that explicitly addresses that. Thus, determining the proper accounting treatment for government incentives can be challenging and likely will depend on an analysis of the nature of the assistance and the conditions on which it is predicated.
While preparers of financial statements under U.S. GAAP may refer to other areas within the relevant accounting framework for guidance, often U.S. GAAP preparers look to IFRS for guidance on government assistance. IFRS includes a specific standard, International Accounting Standard 20, “Accounting for Government Grants and Disclosures of Government Assistance,” that may be relevant. Under IAS 20, a company will recognize the benefit of the grant when there is reasonable assurance that the entity will comply with the conditions and that the grant will be received. Note that while IAS 20 does not define reasonable assurance, it is generally considered to be similar to the notion of “probable” as used in the U.S. GAAP standard ASC 450.
The benefit is recognized using a systematic basis (that is, based on a formula that is logical and consistently applied) over the periods in which the entity recognizes the related expenses or losses for which the grants are intended to compensate or when the grant becomes receivable if it compensates for expenses or losses already incurred. Depending on the facts and circumstances that give rise to the credit, the benefit of the credit may be reported in pretax income as “other income” or may be reported as a reduction to the related pretax expenditures that generated the credit. Further, aspects specific to the actual credit (for example, requirements business entities must fulfill to earn the credit) or other facts and circumstances may affect when (that is, in what financial reporting period) the benefit of the credit is recognized in pretax income or loss.
6. Transferable Credits
As a result of the IRA, certain credits may be transferred to another taxpayer, whether in the full amount or a portion. Payments for transferred credits are neither deductible against taxable income of the buyer nor included in taxable income of the seller.
While ASC 740 does not directly address how to account for transferable credits that may be used by a reporting entity as a reduction of income tax payable on its income tax return or that may be sold to another taxpayer, we understand that the FASB staff believes it is most appropriate to account for these credits as part of the provision for income taxes under ASC 740, regardless of whether the reporting entity that receives the credit claims the credit on its tax return or if that entity sells the credit to another taxpayer.
The FASB staff further believes that if a credit is sold, it is most appropriate for any difference between the notional amount of the credit originally received and the proceeds from sale to be recorded in the income tax provision. Because there is no directly applicable GAAP, the FASB staff acknowledges that other views may be acceptable, such as accounting for transferable credits similar to refundable or direct-pay credits by accounting for the entire credit outside the income tax line on the financial statements.
Moreover, from the buyer’s perspective, U.S. GAAP generally requires that the purchaser of any transferable credit account for the acquisition as a component of the income taxes, with any difference between the face value of the credit and the purchase price to be recognized as a deferred credit on the balance sheet. The deferred credit is a non-income-tax balance sheet account that will amortize into an income tax benefit as the credit is monetized.
7. Comparing U.S. GAAP and IFRS
a. In General
As a practical matter, the accounting model for refundable and nonrefundable tax credits generally aligns between U.S. GAAP and IFRS.28 For example, many preparers of financial statements under IFRS apply similar principles as U.S. GAAP preparers to determine whether tax credits are included under the income tax accounting model (generally, nonrefundable credits) or accounted for in pretax income or loss (generally, refundable credits). However, certain differences between the U.S. GAAP accounting treatment for credits and incentives and IFRS may exist. These differences may affect the timing, recognition, and presentation of the tax benefit between the two accounting standards.
Moreover, while the accounting model under IFRS does not have specific guidance for LIHTCs (as exists under U.S. GAAP), it does have additional considerations relating to ITCs, as noted below.
b. ITCs
IFRS does not define ITCs, but both IAS 12 and IAS 20 scope out the accounting for ITCs. Therefore, if an entity determines that it has an ITC, the entity should adopt an accounting policy and apply it consistently to all similar arrangements. We believe there are three approaches that may be applied. The most appropriate model to apply will depend on the nature of the credit and the specific circumstances of the entity, including previous policy choices:
Tax credit model. This model recognizes the ITC in the income tax provision, similar to the accounting treatment for other tax credits. The benefit is recognized in the year the credit is generated, similar to the flow-through approach under U.S. GAAP.
Government grant model. This model recognizes the tax benefit in pretax income or loss over the related asset’s useful life, similar to a government grant under IAS 20 and approach 1 in Table 1 under the U.S. GAAP deferral method. The benefit is recognized either as other income or as a reduction to depreciation.
Adjustment to the tax base of the asset. Under the initial recognition exception model, the ITC is viewed as an increase of the related asset’s tax base when a related asset is recognized on the balance sheet. In general, this model recognizes the ITC in the income tax provision for which the benefit is generally recognized over the life of the qualifying asset.
Table 2 summarizes the accounting treatment of the three ITC approaches under IFRS.
Approach | Financial Statement Line Item | Timing of Recognition |
---|---|---|
Tax credit model | Income tax provision | In period the credit is generated |
Government grant model | Pretax income | Over the life of the qualifying asset |
Adjustment to the tax base of the asset model | Income tax provision | Over the life of the qualifying asset |
C. U.S. FTC Regs
While not directly relevant to the computation of GLOBE liability, for many years the U.S. FTC rules have addressed the treatment of refundable and other tax credits and can provide a useful perspective. As explained below, the U.S. FTC rules characterize refundable tax credits in a manner that differs from both financial accounting standards and the model rules.
U.S. federal income tax law permits a credit for foreign income, excess profits, and war profits taxes in some cases, but only if the tax is actually paid or accrued. U.S. regulations explain that an amount remitted to a foreign country is not considered an amount of foreign income tax paid to the extent that it is reasonably certain that the amount will be refunded, rebated, abated, or forgiven. Also, an amount of foreign income tax liability is not an amount of foreign income tax paid to the extent the foreign income tax liability is reduced, satisfied, or otherwise offset by a tax credit. Thus, a refundable tax credit is considered to reduce the foreign income tax treated as paid for U.S. FTC purposes unless (under a special rule in the regulations) the tax credit is fully refundable in cash at the taxpayer’s option (that is, not limited to the excess over tax liability). There is no special rule for credits claimed by tax equity investors.
The aforementioned treatment of refundable tax credits for purposes of the U.S. FTC rules is a recent development. Before January 2022, the U.S. regulations did not contain express rules for the treatment of refundable tax credits.
For example, in a 2001 technical advice memorandum the IRS concluded that, because more than a de minimis amount of the French research credit is refundable to taxpayers within a reasonable period of time, the French research credit is not treated as reducing the foreign income tax otherwise paid by the taxpayer.29 The IRS advice is clear that, even though the French research credit first was used to reduce the current year’s French income tax liability, the credit was appropriately viewed as the means of payment of the research credit and not as a refund, credit, abatement, or forgiveness of French income tax liability. This advice is consistent with field service advisories issued by the IRS office of chief counsel through the 1990s, analyzing various refundable incentive credits in Canada, France, and New Zealand,30 and contrasts with an advisory issued regarding the Philippines and a ruling regarding the Netherlands both of which concluded that nonrefundable credits are treated as reductions in foreign income taxes otherwise paid because the only manner in which the benefit can be received is as a credit or offset against foreign income tax assessments.31
During the process of amending the regulations in 2022, Treasury and the IRS expressed concern that, under prior law, foreign countries, rather than reducing their tax rates, instead could offer tax credits that would have the same economic effect without reducing the amount of foreign income tax that is treated as paid for purposes of the U.S. FTC.32 Treasury and the IRS also determined it would be too challenging administratively to determine whether a foreign country whose law provides for nominally refundable credits in practice actually issues cash payments to taxpayers that do not have income tax liabilities equal to the credit.33
In response to a number of comments questioning this rationale, Treasury and the IRS reiterated their view when finalizing the regulations, arguing that refundable tax credits that are payable in cash only to the extent they exceed a taxpayer’s foreign income tax liability are not similar to unrestricted cash grants.34 Treasury and the IRS argued that tax revenue forgone by a foreign taxing jurisdiction by means of this kind of tax credit reflects a policy that may be viewed as a tax expenditure, but a tax expenditure is distinct from a cash outlay.35 Treasury and the IRS further asserted that it would be inappropriate to treat the nonrefundable portion of a refundable credit (that is, the portion that does not exceed the taxpayer’s tax liability) differently from a fully nonrefundable credit.36
For U.S. federal income tax purposes, transferable credits typically reduce the foreign income tax otherwise considered paid by the transferee and constitute gross income of the transferor (with no reduction in the taxes considered paid by the transferor). Specifically, the U.S. FTC regulations provide that an amount of foreign income tax liability is not an amount of foreign income tax paid to the extent the liability is reduced, satisfied, or otherwise offset by a tax credit, including a tax credit “acquired from another taxpayer.”37
As elaborated in the preamble to the 2020 regulations, transferable credits presumably are never fully refundable in cash at the taxpayer’s option because that option would eliminate the benefit derived from selling tax credits; thus, in Treasury and the IRS’s view, these credits represent forgone revenue that is not received or retained by the foreign country. The seller side of transferable credits is not addressed in the U.S. regulations, but general U.S. tax principles typically treat payments of another person’s tax liability as gross income of that other person.38
III. Policy Issues: Analysis
The distinction between QRTCs and other income tax credits drawn in the pillar 2 model rules and commentary is discussed below.
Countries frequently use income tax incentives to promote private-sector activities that advance important national objectives, such as research, green energy, and low-income housing. These incentives often are intended to address positive externalities, in which the social benefits of an investment exceed the private return (for example, the environmental benefits of investing in renewable energy).
These tax incentives are not considered harmful tax practices under the guidelines adopted by the OECD’s Forum on Harmful Tax Practices, nor considered illegal state aid under EU law. Nevertheless, pillar 2 would reduce the efficacy of these credits if they do not meet the requirements for QRTCs or QFTBs. As a result, pillar 2 would undermine the effectiveness of a widely adopted and administratively convenient tool used by governments to advance important social objectives.
According to the blueprint, pillar 2 is intended to address BEPS issues that remain after the 2015 BEPS agreement.39 However, achieving pillar 2’s goal of reducing tax-motivated income shifting does not require eroding the efficacy of tax credits that promote important national priorities. BEPS action 5 establishes rules for identifying harmful tax practices: tax incentives that shift income away from jurisdictions where it is generated. If there is concern that action 5 does not adequately deter tax practices that contribute to BEPS, the action 5 rules could be tightened without undercutting nonharmful tax incentives.
Countries frequently impose strict conditions that must be satisfied to qualify for income tax credits. None of these conditions leads to increased exposure to pillar 2 top-up tax except limits on the use of credits based on income tax liability. These limitations are common and serve legitimate purposes, not the least of which is limiting base erosion. Restrictions on the refundability of tax credits reduce their revenue cost to government in any given year and provide an important measure of protection against tax fraud.40 Almost all general business credits (GBCs) in the United States are limited by reference to the taxpayer’s income tax liability.41 Converting these credits to QRTCs would be extremely costly to the federal government (see discussion in Section IV) and would increase the risk of tax fraud and the administrative burden on the IRS.
An unintended consequence of differential treatment of ordinary tax credits and QRTCs is that taxpayers subject to top-up tax under pillar 2 would have an incentive to enter into transactions that transfer credit entitlement to taxpayers that are out of scope of pillar 2 or otherwise not subject to top-up tax. Tax benefits might be transferred through leasing and partnership structures used to generate QFTBs, among other arrangements. Tax benefit transfers typically have significant structuring costs, and the transferee generally receives substantially less than $1 per dollar of transferred tax benefit. As a result, the effectiveness of the tax incentive is materially reduced. The transferrable feature of the green energy credits enacted in the IRA was intended to allow project developers to avoid the cost of using tax equity financial structures; however, the UTPR frustrates this purpose. The economic cost of tax benefit transfer arrangements motivated by pillar 2 could be avoided if all credits (that are not harmful tax practices) were treated similarly to QRTCs and QFTBs.
Any nonrefundable tax credit provides a different incentive to undertake creditable activity depending on the tax capacity of the taxpayer. If a taxpayer without sufficient tax liability to use a credit can more efficiently undertake a creditable activity than a taxpayer with sufficient tax liability, the disparate treatment results in an economic loss to society. Pillar 2 exacerbates the potential for inefficiency by limiting the ability of taxpayers subject to UTPR to use nonrefundable tax credits.
IV. Cost of Converting U.S. Tax Incentives
A. General Business Credits
1. Revenue Estimates Without Behavioral Response
One possible policy response42 by the United States to ensure that U.S. tax incentives are treated as QRTCs under the OECD model rules would be to make all existing GBCs available without regard to present-law limitations relating to tax liability.43 The potential revenue effect is large. Every year, taxpayers generate billions of dollars more in GBCs than they have tax capacity to use. For tax year 2019, the most recent year for which complete data for corporations and individuals are available, taxpayers reported nearly $110 billion in GBCs that were generated in prior tax years but carried forward to tax year 2019 because there was insufficient tax liability to use all the credits in prior tax years.44 While any particular taxpayer may draw down its stock of carryforwards, the aggregate amount of GBCs carried forward continues to grow.
Table 3 reports revenue estimates for fiscal years 2023-2032 of various alternatives for making GBCs refundable.45 Because of the large stock of GBC carryforwards, a rule that allowed for the retroactive refundability of all GBCs for all taxpayers would result in the largest revenue losses, an estimated $193.1 billion over fiscal years 2023-2032 (the current 10-year period used for federal budgetary purposes) assuming the provision were effective for tax years beginning after 2023. The administrative guidance explains a transition rule for preexisting deferred tax assets attributable to tax credits that were determined before the effective date of the GLOBE rules. Because the credits must be recast at the GLOBE minimum rate, the transition rule provides only partial relief for preexisting GBCs. However, it may be possible to preserve most of the tax incentive for creditable activities without making GBCs fully refundable on a retroactive basis.
One alternative would be to allow refundability only for newly generated credits. The GBC ordering rules require older credits to be stacked first, so pre-effective-date credits would be used against the taxable income limitation and post-effective-date credits would be refundable. Allowing refundability for credits only on a prospective basis would reduce the revenue cost only modestly, from $193.1 billion to $172.1 billion. Delaying the effective date one year would reduce the estimated cost to $169 billion. Within the 10-year budget window, most older credits would have been used under present law, so allowing refundability of GBCs on a retroactive basis has relatively little effect on the revenue cost.
Refundability could be limited to U.S. taxpayers potentially subject to the UTPRs adopted by other countries — generally, corporate taxpayers with gross receipts of €750 million or more. Limiting refundability to this group of taxpayers would reduce the estimated revenue loss by 15 to 20 percent, to between $139.5 billion and $152.9 billion, depending on the effective date of the proposal and whether it applies retroactively. While limiting the revenue cost, providing refundable tax credits only to large corporations may present political challenges.
Eligible Taxpayers | Effective Date | Fiscal | Fiscal |
---|---|---|---|
All taxpayers | Tax years beginning after 12/31/2023 | -153.7 | -193.1 |
All taxpayers | Credits determined in tax years beginning after 12/31/2023 | -112.3 | -172.1 |
All taxpayers | Credits determined in tax years beginning after 12/31/2024 | -96.1 | -169 |
Corporations with gross receipts ≥ €750 million | Tax years beginning after 12/31/2023 | -123 | -152.9 |
Corporations with gross receipts ≥ €750 million | Credits determined in tax years beginning after 12/31/2023 | -92 | -141.3 |
Corporations with gross receipts ≥ €750 million | Credits determined in tax years beginning after 12/31/2024 | -78.5 | -139.5 |
Note: These estimates do not take into account behavioral responses on the part of taxpayers. The estimates likely understate the potential revenue cost of the policy and should be interpreted as providing a sense of the order of magnitude of the effect on receipts. |
The estimates above are for proposals that provide full refundability of all GBCs. There may be alternative proposals that could preserve most of the benefit of U.S. tax incentives at a lower cost. For example, taxpayers that are in scope of pillar 2 may claim some credits, such as the LIHTC and the new markets tax credit, through minority interests that are accounted for under the equity method of accounting. To the extent that items accounted for under the equity method of accounting are treated as QFTBs under the GLOBE rules, it may not be necessary to make these credits refundable to preserve their benefit.
Alternatively, a taxpayer could be allowed an election to claim the amount of any GBC as a credit against other taxes, such as excise taxes46 or payroll taxes.47 Another approach would allow a taxpayer to elect to defer a portion of the GBC to maintain a GLOBE ETR above the threshold in the current year.
2. Behavioral Responses
By making all credits refundable without regard to tax liability, the effective subsidy rate would increase, and this would be expected to result in additional creditable activity by existing claimants and by expanding the pool of interested taxpayers. To the extent that allowing a taxpayer to elect to claim the credit against other taxes would accelerate the timing of the credit, this proposal would have a similar effect of increasing the effective subsidy rate. However, a proposal to allow a taxpayer to elect to defer a portion of the GBC would reduce the effective subsidy rate relative to present law by delaying the time at which the incentive is delivered.
B. Foreign-Derived Intangible Income
1. Revenue Estimates Without Behavioral Response
The deduction for foreign-derived intangible income is designed to provide an ETR on FDII of 13.125 percent for tax years beginning before January 1, 2026.48 Because this rate is below the ETR for purposes of the OECD model rules, it could create a situation in which the benefit intended to accrue to domestic corporations would accrue to foreign governments instead.
One possible policy response by the United States that would preserve the U.S. tax incentive for FDII under the OECD model rules would be to replace the deduction with a refundable tax credit that would yield the same ETR on FDII. That approach would provide a refundable tax credit equal to 7.875 percent (the excess of the 21 percent corporate tax rate over 13.125 percent)49 of the lesser of FDII or taxable income. Conforming changes could be made to the calculation of the deduction for GILTI to prevent any collateral revenue effect as a result of the changes to the tax treatment of FDII.50 Depending on how the provision is structured, it may be possible to design a refundable credit for the same cost as the existing incentives.
Table 4 reports a revenue estimate of a proposal to provide a refundable tax credit for all FDII without regard to the taxable income limitations of present law, excluding potential behavioral responses on the part of taxpayers.51
Effective Date | Fiscal 2023-2027 | Fiscal 2023-2032 |
---|---|---|
Tax years beginning after 12/31/2023 | -1.2 | -2.6 |
Tax years beginning after 12/31/2024 | -0.8 | -2.2 |
Note: These estimates do not take into account behavioral responses on the part of taxpayers. The estimates likely understate the potential revenue cost of the policy and should be interpreted as providing a sense of the order of magnitude of the effect on receipts. |
2. Behavioral Responses
If the reduced ETR applied to more income, taxpayers may be expected to shift more activity from operations that produce relatively high-taxed income to operations that produce relatively lower-taxed income than would be the case under present law. This shift in behavior would be expected to increase the revenue cost associated with the proposal.
C. Tax-Exempt Bond Interest
One possible policy response by the United States to preserve federal tax incentives for states and municipalities under the OECD model rules would be to replace the tax exemption for municipal bond interest with a direct-pay bond. A direct-pay bond is one for which a portion of the interest costs are reimbursed by the federal government directly to the bond issuer.52 The interest on the bond would be fully taxable to the recipient, thus eliminating a difference between the tax base for federal income tax purposes and the OECD model rules.
An investor generally is willing to accept a lower interest rate on a tax-exempt bond than on an otherwise identical taxable investment. Thus, a borrower that issues tax-exempt debt receives a federal subsidy equal to the difference between the tax-exempt interest rate and the taxable rate the issuer would otherwise pay. To the extent that the tax-exempt interest rate exceeds the after-tax interest rate on an otherwise comparable investment, the investor receives a portion of the federal subsidy as well. In this case, the forgone revenues from providing tax-exempt bonds exceed the value of the subsidy received by issuers.
If direct-pay bonds entirely replace tax-exempt bonds, it theoretically is possible to set a credit rate for a direct-pay bond that could provide an equivalent subsidy to issuers at a lower cost to the U.S. Treasury or to provide a greater subsidy for the same cost to the U.S. Treasury. If the credit rate is set equal to the marginal tax rate of the marginal holder of tax-exempt bonds and the interest rate on direct-pay bonds is equal to the interest rate on taxable bonds, then there is no change in either the interest rate paid by issuers or the volume of total bond issuance. The revenue gain to Treasury of such a proposal would depend on the extent to which the average marginal tax rate of all investors in tax-exempt bonds exceeds the marginal tax rate of the marginal investor in tax-exempt bonds.
If both tax-exempt and direct-pay bonds are available to issuers, the direct-pay bond credit rate must be set so that the after-credit interest rate will be less than or equal to the interest rate paid on tax-exempt bonds (otherwise issuers will continue to issue only cheaper tax-exempt bonds). The cost to the federal government of the outlay associated with the credit on direct-pay bonds is partially offset by higher revenues resulting from investors now holding taxable direct-pay bonds that previously would have held tax-exempt bonds.53
The Joint Committee on Taxation staff has estimated that a proposal that would have created a direct-pay bond for infrastructure at an initial subsidy rate of 35 percent (phasing down to 28 percent) would have cost $22.5 billion for fiscal 2022-2031.54 Based on this Joint Committee revenue estimate, Table 5 reports the estimated budgetary effects for fiscal 2023-2032 of a proposal to provide for a 28 percent credit rate.55 For bonds issued after December 31, 2023, the proposal is estimated to cost $8.7 billion over fiscal 2023-2032. Delaying the effective date to bonds issued after December 31, 2024, is estimated to cost $8.2 billion.
Effective Date | Fiscal 2023-2027 | Fiscal 2023-2032 |
---|---|---|
Bonds issued after 12/31/2023 | -1.8 | -8.7 |
Bonds issued after 12/31/2024 | -1.2 | -8.2 |
Taxpayers with a marginal tax rate of 28 percent or higher would prefer to hold tax-exempt bonds over comparable direct-pay bonds (given the assumption that issuers will only issue direct-pay bonds if the after-credit interest rate is less than or equal to the interest rate on comparable tax-exempt bonds). Because corporations would have a marginal tax rate below the 28 percent credit rate on direct-pay bonds, they would prefer to hold direct-pay bonds over comparable tax-exempt bonds with an interest rate that was 72 percent of that of a direct-pay bond.
V. Conclusion
The distinction in the model rules between QRTCs and other tax credits is not clear-cut and depends on how a particular credit applies to the population of affected taxpayers — information that typically is not available to any individual taxpayer. Also, the approach to distinguishing credits that are treated as pretax income, rather than as income tax reductions, differs among the model rules, the U.S. GAAP, the IFRS, and the U.S. FTC regulations. Further, U.S. GAAP provides three options for accounting for ITCs and special rules for the LIHTC, and has different considerations for income tax credits associated with majority- and minority-owned investments. Thus, the distinction between QRTCs and other income tax credits in the model rules appears somewhat subjective and arbitrary. The exception in the recently released administrative guidance that treats QFTBs as QRTCs is welcome; however, there is no apparent principled basis for this special rule.
This article questions whether governments should be forced to make income tax credits refundable or, alternatively, convert them into direct grants, to preserve their efficacy. Similarly, it is unclear why credits claimed directly by project developers are treated less favorably than the same credits claimed by tax equity investors in the project. The article notes that under the 2015 OECD BEPS agreement, rules exist for identifying harmful tax practices, and these rules can be used to address concerns about BEPS without undermining the efficacy of nonharmful income tax credits and other tax incentives designed to address important economic, social, and environmental goals.
If a government were forced to convert existing income tax incentives to QRTCs, the budgetary cost would be substantial. This article estimates the revenue cost for the United States of making GBCs refundable would be between $140 billion and $193 billion over fiscal 2023-2032, depending on the effective date and whether credits would be refundable to all taxpayers or only to those in scope of pillar 2.
Should the inclusive framework wish to address the issues raised in this article, the model rules could be amended to treat all income tax credits like QRTCs. This would improve the efficacy of income tax credits for both parent companies of domestic MNEs and domestic affiliates of foreign MNEs. A narrower approach would be to exclude from the scope of the UTPR income earned by MNEs in their home countries. This would improve the efficacy of income tax credits for the parent companies of domestic MNEs but not the domestic affiliates of foreign MNEs. Alternatively, a safe harbor could be provided that would treat nonharmful tax credits as QRTCs.
Absent modification of the model rules, countries may consider various options for protecting domestic tax incentives from being eroded under pillar 2. These options include56 recasting tax incentives as government grants or QRTCs, facilitating the use of tax benefit transfers through tax equity investments and leasing, increasing the use of accelerated cost recovery, allowing deferral of income recognition, and allowing elective carryforward and carryback of tax credits.57
Appendix
References to Qualified Refundable Tax Credits and Qualified Flow-Through Tax Benefits in OECD Model Rules, Commentary, and Administrative Guidance
Model Rules
Article 3.2.4
Qualified Refundable Tax Credits shall be treated as income in the computation of GloBE Income or Loss of a Constituent Entity. Non-Qualified Refundable Tax Credits shall not be treated as income in the computation of GloBE Income or Loss of a Constituent Entity.
Article 4.1.2
The Additions to Covered Taxes of a Constituent Entity for the Fiscal Year is the sum of:
(a) any amount of Covered Taxes accrued as an expense in the profit before taxation in the financial accounts;
(b) any amount of GloBE Loss Deferred Tax Asset used under Article 4.5.3;
(c) any amount of Covered Taxes that is paid in the Fiscal Year and that relates to an uncertain tax position where that amount has been treated for a previous Fiscal Year as a Reduction to Covered Taxes under Article 4.1.3(d); and
(d) any amount of credit or refund in respect of a Qualified Refundable Tax Credit that is recorded as a reduction to the current tax expense.
Article 4.1.3
The Reductions to Covered Taxes of a Constituent Entity for the Fiscal Year is the sum of:
(a) the amount of current tax expense with respect to income excluded from the computation of GloBE Income or Loss under Chapter 3;
(b) any amount of credit or refund in respect of a Non-Qualified Refundable Tax Credit that is not recorded as a reduction to the current tax expense;
(c) any amount of Covered Taxes refunded or credited, except for any Qualified Refundable Tax Credit, to a Constituent Entity that was not treated as an adjustment to current tax expense in the financial accounts;
(d) the amount of current tax expense which relates to an uncertain tax position; and
(e) any amount of current tax expense that is not expected to be paid within three years of the last day of the Fiscal Year.
Article 10.1 Defined Terms
Qualified Refundable Tax Credit means a refundable tax credit designed in a way such that it must be paid as cash or available as cash equivalents within four years from when a Constituent Entity satisfies the conditions for receiving the credit under the laws of the jurisdiction granting the credit. A tax credit that is refundable in part is a Qualified Refundable Tax Credit to the extent it must be paid as cash or available as cash equivalents within four years from when a Constituent Entity satisfies the conditions for receiving the credit under the laws of the jurisdiction granting the credit. A Qualified Refundable Tax Credit does not include any amount of tax creditable or refundable pursuant to a Qualified Imputation Tax or a Disqualified Refundable Imputation Tax.
Commentary
Article 3.2.4 Qualified Refundable Tax Credits
110. Article 3.2.4 prescribes the treatment of certain refundable tax credits. The refundable tax credits referred to in Article 3.2.4 are government incentives delivered via the tax system. They are not ordinary refunds of tax paid in a prior period due to an error in the computation of tax liability or pursuant to an imputation system. Instead, they are incentives to engage in certain activities, such as research and development, whereby the government allows the company to offset its taxes dollar-for-dollar for engaging in specified activities or incurring specified expenditures or the government will refund the amount of the unused credit if the company doesn’t have any tax liability. In this way, the government effectively pays for the activity or expenditure in a similar manner to a grant. The basic idea is that the incentive or grant is delivered by a tax reduction to the extent possible because it is more efficient than having checks from the government and taxpayer crossing in the mail.
111. The full amount of a Qualified Refundable Tax Credit will be treated as GloBE Income of the recipient Constituent Entity in the year such entitlement accrues. This reflects that these types of refundable tax credits share features of, and should be treated in the same way as, government grants that form part of income, given that they are in effect government support for a certain type of activity that can ultimately be received in cash or cash equivalent. See also the Commentary on the definition of Qualified Refundable Tax Credit.
112. In cases where an amount of a Qualified Refundable Tax Credit has been recorded as a reduction in current income tax expense (or other Covered Taxes) in the financial accounts of the Constituent Entity, that amount must be treated as an Addition to Covered Taxes under Article 4.1.2(d) to fully reverse the accounting entry that treated it as a tax reduction instead of income. This ensures that the Qualified Refundable Tax Credit is treated as an item of income rather than a reduction of accrued taxes. No adjustment is required if a tax credit that meets the definition of Qualified Refundable Tax Credit was already treated as income in the financial accounts.
113. Likewise, a tax credit that does not meet the conditions for being a Qualified Refundable Tax Credit, i.e. a Non-Qualified Refundable Tax Credit, but that was treated as income in the financial accounts, must be deducted in full from the measure of net income in the financial statements, and there must be a corresponding reduction of Adjusted Covered Taxes under Article 4.1.3(b).
114. Where the tax credit regime under the laws of a jurisdiction provides for partial refundability, such that only a fixed percentage or portion of the credit is refundable, these rules apply separately to the refundable part and the non-refundable part of the tax credit.
Article 4.1.2
Paragraph (d) adds any amount of refund or equivalent credit in respect of a Qualified Refundable Tax Credit that has been recorded as a reduction to current tax expense. A Qualified Refundable Tax Credit is defined in Article 10.1 as a refundable tax credit designed in a way such that it becomes refundable within 4 years from when a Constituent Entity satisfies the conditions for receiving the credit under domestic law of a jurisdiction in which the Constituent Entity is located. Qualified Refundable Tax Credits are treated as income items in the computation of GloBE Income or Loss. Accordingly, when such credit or refund is granted, any amount that has been recorded as a reduction to current tax expense in the Constituent Entity’s financial accounts is reversed-out in the same Fiscal Year the current tax expense is recorded in order to prevent the ETR for the jurisdiction being understated by such a reduction in Covered Taxes. The GloBE Rules provide for a corresponding adjustment to the Financial Accounting Net Income or Loss that treats the amount of Qualified Refundable Tax Credit as income in the year the entitlement to such credit accrues (see the Commentary to Article 3.2.4).
Article 4.1.3
Paragraph (b)
13. A Non-Qualified Refundable Tax Credit may be treated, for financial accounting purposes, as income of Constituent Entity. However, for GloBE purposes these Non-Qualified Refundable Tax Credits are excluded from the computation of GloBE Income or Loss pursuant to Article 3.2.4 and are treated as a reduction in the tax expense of the Constituent Entity. Article 4.1.3(b) achieves this by subtracting from the current tax expense the amount of credit or refund in respect of a Non-Qualified Refundable Tax Credit to the extent that such amount is not already recorded as a reduction to the current tax expense. Paragraph (b) therefore compliments [sic] the operation of Article 3.2.4 by ensuring that any Non-Qualified Refundable Tax Credit is treated as a reduction to current tax expense rather than an additional income item in the GloBE ETR calculation.
Paragraph (c)
14. Paragraph (c) removes any amount of Covered Taxes refunded or credited to a Constituent Entity in cases where the credit or refund has not already been treated as an adjustment to current tax expense in the financial accounts. It does not apply to Qualified Refundable Tax Credits. This paragraph ensures that to the extent a Constituent Entity receives a refund or credit of claimed Covered Taxes that this amount is still treated as a reduction in the computation of Adjusted Covered Taxes for the Fiscal Year in which the refund or credit is accrued or received. This is the case even where the Constituent Entity’s accounting principles or policy did not treat that amount as an adjustment to the current tax expense. The application of paragraph (c) will be limited, because Article 4.6.1 governs adjustments to the liability for Covered Taxes for a previous Fiscal Year. Paragraph (c) will apply when such a refund or credit is not an adjustment to a Constituent Entity’s liability for Covered Taxes for a previous Fiscal Year.
15. Paragraph (c) would apply, for example, if a jurisdiction provided a credit for previously incurred taxes on corporate equity where the tax and the corresponding credit was taken into account as an ordinary expense or income for financial reporting purposes in the year of the credit. This paragraph also applies to refunds and credits in respect of Covered Taxes when the refund or credit is made to a different Constituent Entity than the entity that originally incurred the tax expense. Paragraph (c) may apply to refunds and credits in respect of Covered Taxes paid or accrued in a current or previous Fiscal Year (subject to the overriding operation of Article 4.6).
Article 10.1 — Defined Terms
Qualified Refundable Tax Credit
134. The GloBE Rules include specific rules in Chapters 3 and 4 for the treatment of Qualified Refundable Tax Credits and Non-Qualified Refundable Tax Credits. A Qualified Refundable Tax Credit is treated as income for purposes of the GloBE Rules, which means the credit is taken into account in the denominator of the ETR computation and is not treated as reducing a Constituent Entity’s taxes in the year the refund or credit is claimed. All other refundable tax credits (i.e. Non-Qualified Refundable Tax Credits) are excluded from income but treated as a reduction to Covered Taxes in the period the refund or credit is claimed, which means they reduce the numerator of the ETR computation. The distinction between “Qualified” and “Non-Qualified” Refundable credits, and their different treatment under specific rules in Chapters 3 and 4, ensure that refundable tax credits are properly accounted for in the computation of the GloBE Income or Loss and the determination of Adjusted Covered Taxes in a way that provides for transparent and predictable outcomes under the GloBE Rules.
135. In order to be treated as a Qualified Refundable Tax Credit under the GloBE Rules, the tax credit regime must be designed in a way so that a credit becomes refundable within 4 years from when the conditions under the laws of the jurisdiction granting the credit are met. Refundable means that the amount of the credit that has not been applied already to reduce Covered Taxes is either payable as cash or cash equivalent. For this purpose, cash equivalent includes checks, short-term government debt instruments, and anything else treated as a cash equivalent under the financial accounting standard used in the Consolidated Financial Statements as well as the ability to use the credit to discharge liabilities other than a Covered Tax liability. If the credit is only available to reduce Covered Taxes, i.e. it cannot be refunded in cash or credited against another tax, it is not refundable for this purpose. If the tax credit regime provides for an election by the taxpayer to receive the credit in a manner that is refundable, the tax credit regime is considered refundable to the extent of the refundable portion, regardless of whether any particular taxpayer elects refundability.
136. The conditions for a Qualified Refundable Tax Credit draw on the treatment in financial accounting standards (both for government grants and for income taxes), and are designed to identify tax credits that are, as a matter of substance and not merely form, likely to be refunded. However, in order to be treated as a Qualified Refundable Tax Credit under the GloBE Rules, the tax credit regime under the laws of a jurisdiction must be designed such that the refund mechanism has practical significance for those taxpayers that will be entitled to the credit. If the design of a tax credit regime is such that the credit will never exceed any taxpayer’s tax liability (or it is intended that the credit will never exceed any taxpayer’s tax liability), then, the refund mechanism will be of no practical significance to taxpayers and the GloBE Rules will not treat the credit as a Qualified Refundable Tax Credit. The assessment of whether a credit is refundable in the sense contemplated by the GloBE Rules must be made based on the conditions under which the credit is granted and on the information that was available at the time the credit was introduced into domestic law. This analysis is based on a qualitative assessment of the tax credit regime as a whole, and not on a taxpayer specific basis, however it should take into account circumstances under which the credit is made available. For example, a tax credit regime that was only available to a profitable taxpayer or group of taxpayers that were profitable (and excluded taxpayers that were not profitable) might include a refundable element that, in practice, can never result in the credit exceeding the taxpayer’s tax liability. In contrast a tax credit regime that is generally available to taxpayers will not cease to be a Qualified Refundable Tax Credit simply because all the taxpayers that take advantage of that credit happen to be profitable.
137. The determination of whether a credit is refundable within 4 years is made at the time the conditions for granting the credit are met based on the law of the jurisdiction that granted the credit. Thus, in a situation where the Constituent Entity has incurred no tax or other liability to a government in the jurisdiction that granted the credit, a credit must be payable in cash or cash equivalents within 4 years from when the relevant conditions for granting the credit are met in order to be a Qualified Refundable Tax Credit. Where the tax credit regime under the laws of a jurisdiction provides for a partial refund such that only a fixed percentage or portion of the credit is refundable, the refundable portion of the credit can be treated as a Qualified Refundable Tax Credit provided that portion will become refundable within 4 years from when the conditions for granting the credit under the laws of the jurisdiction granting the credit are met.
138. The provisions of Article 8.3 on Administrative Guidance will apply to ensure consistency of outcomes in respect of the application of this standard. If those jurisdictions that adopt the common approach identify risks associated with the treatment of tax credits and government grants that lead to unintended outcomes, the relevant jurisdictions could be asked to consider developing further conditions for a Qualified Refundable Tax Credit or, if necessary, explore alternative rules for the treatment of tax credits and government grants. This analysis would be based on empirical and historical data with respect to the tax credit regime as a whole, and not on a taxpayer specific basis.
Administrative Guidance
Qualified Flow-Through Tax Benefits
11. The Inclusive Framework has determined that a special rule will apply to Qualified Flow-through Tax Benefits. These are tax credits (other than Qualified Refundable Tax Credits) and the tax benefits of losses that flow to an investor as a return of (rather than a return on) the investor’s investment. Qualified Flow-through Tax Benefits, are allowed as a positive amount in the owner’s Adjusted Covered Taxes. For instance, if the Qualified Flow-through Tax Benefit was treated for financial accounting purposes as reducing tax expense, the Qualified Flow-through Tax Benefit shall be added to the Adjusted Covered Taxes to the extent necessary to offset the reduction to financial accounting tax expense. The special treatment of Qualified Flow-through Tax Benefits is designed to ensure the neutrality of certain tax equity structures where such non-refundable tax credits are an essential element of the investment return. Accordingly, this special treatment only applies:
a. where, at the time of the investment, the investor’s expected return on the Ownership Interest would not be positive in the absence of the expected non-refundable credits; and
b. to the extent the Qualified Flow-through Tax Benefits constitute a return of all or part of the investor’s investment.
12. The MNE Group will need to maintain records to verify that tax benefits that flow through the partnership are Qualified Flow-through Tax Benefits and provide any information on Qualified Flow-through Tax Benefits required by the GloBE Information Return.
FOOTNOTES
1 As of November 2021, there were 141 members of the inclusive framework on BEPS.
3 By adopting a qualified domestic minimum top-up tax (QDMTT), countries can impose top-up tax on domestic income of in-scope companies and preempt imposition of the IIR and UTPR.
4 Unlike under the 2020 pillar 2 blueprint, the 2021 pillar 2 model rules allow countries to impose the UTPR on low-taxed income in another jurisdiction even if the MNE makes no payments between the jurisdictions. OECD, “Tax Challenges Arising From the Digitalisation of the Economy — Global Anti-Base Erosion Model Rules (Pillar Two)” (2021). This was a significant and, from the perspective of taxpayers and practitioners, unexpected change to the design of the UTPR that dramatically expanded its potential to reduce the effectiveness of home-country tax incentives. Many believe this approach to the UTPR is incompatible with most income tax treaties. See David Noren, “Coordination of Undertaxed Payment Rules With Bilateral Income Tax Treaties,” Tax Mgmt. Int’l J. (Sept. 2, 2022).
5 OECD, “Tax Challenges Arising From the Digitalisation of the Economy — Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two)” (2023).
6 As of November 4, 2021, 137 jurisdictions had agreed. See OECD, “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalisation of the Economy” (Oct. 8, 2021).
7 See OECD model rules, supra note 4.
8 OECD, “Tax Challenges Arising From the Digitalisation of the Economy — Commentary to the Global Anti-Base Erosion Model Rules (Pillar Two)” (2022).
9 OECD guidance, supra note 5.
10 COM(2021) 823 final (Dec. 22, 2021).
11 European Council, EUCO 34/22 (Dec. 15, 2022).
12 OECD commentary, supra note 8, at 119.
13 OECD, “Transfer Pricing Documentation and Country-by-Country Reporting, Action 13 — 2015 Final Report” (2015).
14 Covered taxes include taxes on distributed profits, notional profit distributions, non-operating expenses levied under an eligible distribution tax system, taxes levied in lieu of a generally applicable corporate income tax, and taxes levied in connection with retained earnings and an entity’s equity, as well as taxes based on multiple components of income and equity. Covered taxes do not include the top-up taxes imposed under the GLOBE rules. See OECD model rules, supra note 4, at article 4.2.2).
15 OECD administrative guidance, supra note 5, at 67.
16 Id. at 105.
17 See the definitions of “qualified refundable tax credit” in the model rules, supra note 4, at 65, and other terms used therein (reproduced in the appendix).
18 OECD commentary, supra note 8, at 64 (paras. 110-114) and 215-216 (paras. 134-138) (reproduced in the appendix).
19 The administrative guidance also provides that the settlement of any pre-GLOBE refundable tax credit will not reduce adjusted covered taxes, whether or not the credit is a QRTC.
20 In the typical partnership structure, the investor initially receives most of the income, deductions, and credits from the project, while the developer receives operating cash flow. This generally continues until the developer has earned back the original investment. Then, under the partnership agreement, the operating cash flow goes to the investor. The investor continues to earn all the operating cash flow until certain thresholds are met (for example, until a predetermined return on investment). Finally, all the income, deductions, credits, and operating cash flow revert to the developer.
21 In a typical leasing arrangement structure, the developer sells the project to an investor who then leases the project back to the developer. The investor receives all the tax benefits including all the applicable tax credits. The developer makes lease payments to the investor. The developer operates the project and earns all income resulting from the project minus the lease payments paid to the developer.
22 For additional considerations regarding accounting for ITCs, refer to Chapter 3 of PwC, “Income Taxes” (2022).
23 The equity method is used to account for investments in common stock or other eligible investments by recognizing the investor’s share of the economic resources underlying those investments. The equity method is applied if these investments provide the investor with the ability to exercise significant influence over the investee.
24 ASC 820-10-20 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
25 For additional considerations regarding the accounting for LIHTCs, see PwC, supra note 22.
26 Under the pillar 2 model rules and commentary, income or loss arising from an ownership interest that is accounted for under the equity method is generally excluded from the GLOBE income base (article 3.2.1 of the model rules). Article 4.1.3 of the model rules further removes the amount of current tax expense regarding income that is excluded in the computation of GLOBE income or loss. Among other considerations, the impact of an enterprise’s LIHTC investments on overall pillar 2 outcomes should consider articles 3 and 4 of the model rules, as well as the administrative guidance released on February 2, 2023.
27 Under the cost method, an investment is reported at its historical cost, which is not subsequently adjusted unless an impairment occurs. Historical cost refers to the purchase price or, if contributed, the fair value of the investment on the date of acquisition.
28 For additional considerations regarding the U.S. GAAP versus IFRS comparisons, refer to PwC, “IFRS and U.S. GAAP: Similarities and Differences” (2022).
29 See TAM 200146001.
30 See FSA 1992 WL 1354844 (Aug. 19, 1992); FSA 1997 WL 33314920 (Dec. 8, 1997); FSA 1994 WL 1866336 (Dec. 22, 1994).
31 See Rev. Rul. 86-134, 1986-2 C.B. 104; GCM 39617; FSA 1996 WL 33321154 (Mar. 29, 1996).
32 See REG-101657-20.
33 Id.
35 Id.
36 Id.
37 Reg. section 1.901-2(e)(2)(ii).
38 See, e.g., Dynamics Corp. v. United States, 392 F.2d 241 (Ct. Cl. 1968); Beneficial Corp. v. Commissioner, 18 T.C. 396 (1952), aff’d, 202 F.2d 150 (3d Cir. 1953) (per curiam); Rev. Rul. 73-605, 1973-2 C.B. 109; LTR 200225032.
39 OECD, pillar 2 blueprint, supra note 2, at 3.
40 Fraudulent tax refund claims are a significant administrative challenge for income taxes as well as indirect taxes (for example, VAT).
41 Under the Protecting Americans from Tax Hikes Act of 2015, qualified small businesses were allowed to elect to apply up to $250,000 of research credits against the Social Security payroll tax for up to five years. The IRA increased the dollar amount to $500,000 and allowed an offset against the Medicare payroll tax. The IRA also allows taxable businesses through December 31, 2032, to elect to claim direct-payment credits that are effectively refundable under sections 45Q (carbon capture), 45V (clean hydrogen production), and 45X (advanced manufacturing production).
42 In addition to the policies discussed in this section, other U.S. incentives that may be implicated by the OECD model rules include accelerated cost recovery that does not reverse within four years. This article does not include any revenue estimate of an alternative policy to preserve this incentive.
43 Section 38(c) provides that the GBC allowed for any tax year shall not exceed the excess (if any) of the taxpayer’s net income over 25 percent of so much of the taxpayer’s net regular tax liability as exceeds $25,000. GBCs may offset no more than approximately 75 percent of regular tax liability. Special rules apply for the alternative minimum tax.
44 IRS, “Statistics of Income: Corporation Income Tax Returns Line Item Estimates 2019,” Publication 5108 (Rev. 6-2022), at 157, 159; and IRS, “Statistics of Income: Individual Income Tax Returns Line Item Estimates 2019,” Publication 4801 (Rev. 12-2021), at 87, 89.
45 The estimates do not take into account behavioral responses on the part of taxpayers, such as increasing the amount of creditable activity undertaken as a result of the ability to use the tax credit without regard to any limitation based on tax liability. As such, the estimates likely understate the potential revenue cost of the policy and should be interpreted as providing a sense of the order of magnitude of the effect on receipts.
46 For example, under present law, a taxpayer may elect to claim the biodiesel and renewable diesel fuel credit or the sustainable aviation fuel credit either: (1) as an excise tax credit under section 6426, in which case the claimant first claims the credit against its excise tax liability and, to the extent the credit exceeds its excise tax liability, may claim either a payment under section 6427 or a refundable income tax credit under section 34; or (2) as a nonrefundable GBC. The provisions are coordinated so that the GBC is properly reduced to take into account any benefit provided by the excise tax credit provisions.
47 For example, under present law, a qualified small business may elect to treat a portion of the research credit as a credit against payroll taxes. The amount allowed as a GBC is adjusted to take into account the payroll tax credit portion of the credit.
48 For tax years beginning after December 31, 2025, the effective tax rate on FDII is approximately 16.406 percent because the deduction percentage for FDII is scheduled to decline from 37.5 percent to 21.875 percent for tax years beginning after December 31, 2025 (0.21 * (1 - 0.21875) = 0.1640625).
49 For tax years beginning after December 31, 2025, the credit rate would be 4.59375 percent (0.21 * 0.21875 = 0.0459375).
50 For example, the calculation of the reduction in the section 250 deduction could continue to account for both FDII and GILTI so that the proportionate adjustment to the deduction for GILTI is preserved.
51 The estimates do not take into account any behavioral response of taxpayers to the increased incentive, such as an increase in the amount of creditable income.
52 Build America Bonds, created by the American Recovery and Reinvestment Act of 2009, were direct-pay bonds. The interest income on these bonds is taxable to the bondholder, and the issuer receives a refundable tax credit (a federal government payment) equal to 35 percent of the interest payments on the bonds.
53 If interest rates on direct-pay bonds are less than on tax-exempt bonds and local governments use the savings from lower borrowing costs to reduce taxes that are deductible from federal income taxes, there may be an additional offsetting increase in federal tax receipts. If governments use the savings to increase the volume of borrowing, then this effect is zero.
54 JCT, “Estimated Budgetary Effects of the Revenue Provisions of Subtitles F, G, H, and J of the Budget Reconciliation Legislative Recommendations Relating to Infrastructure Financing, Green Energy, Social Safety Net, and Drug Pricing, Fiscal Years 2022-2031,” JCX-41-21 (Sept. 11, 2021).
55 The estimate incorporates portfolio shifts among investors and issuers.
56 See Heydon Wardell-Burrus, “State Strategic Responses to the GloBE Rules,” Oxford Centre for Business Taxation WP 22/21 (Dec. 1, 2022).
57 The views expressed herein are solely those of the authors and do not necessarily reflect those of PwC. All errors and views are those of the authors and should not be ascribed to PwC or any other person.
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