The U.S. Department of the Treasury and IRS on Dec. 1, 2023, released proposed rules under Section 30D of the Internal Revenue Code, the Clean Vehicle Tax Credit, as they relate to the definition of "foreign entity of concern." Simultaneously, a revenue procedure providing additional procedural rules for qualified manufacturers to evidence compliance was also released.

As further detailed in Holland and Knight's previous alert ("Treasury Department, IRS Release Clean Vehicle Tax Guidance," April 12, 2023), per the statute, the credit is not available for vehicles:

  • placed in service after Dec. 31, 2024, with respect to which any of the applicable critical minerals contained in the battery of such vehicle were extracted, processed or recycled by a foreign entity of concern
  • placed in service after Dec. 31, 2023, with respect to which any of the components contained in the battery of such vehicle were manufactured or assembled by a foreign entity of concern

The statute states that a foreign entity of concern includes an entity "owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation." Although it established which foreign countries are considered covered nations (e.g., China), the statute does not otherwise describe what it means to be owned by, controlled by or subject to the jurisdiction or direction of a covered nation's government or extracted, processed or recycled by a foreign entity of concern.

Proposed Regulations

The proposed regulations provide some clarity on this issue and reference proposed guidance issued by the U.S. Department of Energy. In general, an entity incorporated in, headquartered in or performing the relevant activities in a covered nation would be classified as a foreign entity of concern. For purposes of these rules, an entity would be "owned by, controlled by, or subject to the direction" of another entity if 25 percent or more of the entity's board seats, voting rights or equity interest are cumulatively held by such other entity. In addition, licensing agreements or other contractual agreements may also create control. Finally, "government of a foreign country" would be defined to include subnational governments and certain current or former senior foreign political figures.

Comments are due within 45 days from official publication in the Federal Register.

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