November 30, 2017 Read More →

U.S. Tax Reform Plan Includes Provision Harmful to Renewable Energy Sector

GreenTech Media:

With the Senate tax bill speeding toward a vote, renewable energy trade organizations on Wednesday raised the alarm about an obscure and “extremely problematic” provision they say would pull the investment rug out from underneath renewables projects.

“It’s a crazy situation — one that we should not be in at the moment,” said Greg Wetstone, CEO of the American Council on Renewable Energy. “We are in an all-hands-on-deck drill across the sector trying to repair a very broken problem.”

That problem is the Base Erosion Anti-Abuse Tax (BEAT) provision, which targets “earnings strippings,” where large companies with foreign operations reduce their tax bills through cross-border payments they can then deduct in the U.S. The BEAT provision aims to circumvent that stripping with a minimum tax of 10 percent of taxable income.

BEAT would require every company to do two calculations: one quantifying 10 percent of a company’s taxable income, including cross-border payments, and another quantifying the corporation’s tax liability, excluding any tax credits the company received from tax equity investments.

The BEAT provision applies to all but R&D credits. If a company has invested in renewables, the second number could be lower than the first. If that’s the case, the company would have to pay the difference in taxes.

That expense makes any renewables investments exponentially less appealing to large, risk-averse companies.

Tax equity is the renewable energy market’s “core financing tool,” said Keith Martin, a transactional lawyer at Norton Rose Fulbright who specializes in tax and project finance. It makes up 50 to 60 percent of the funds for an average wind farm and 40 to 50 percent of funds for the average solar project.

And while the tax implications for companies are complex, the potential impact on the renewables market is not. Put simply, the BEAT provision would make projects cost more.

“The more expensive something is to build, the less of it you get,” said Martin.

More: The Obscure ‘Poison Pill’ Senate Tax Provision Threatening Renewables

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