USA Trends and Developments Contributed by: Devon M. Bodoh, Joseph M. Pari and Blake D. Bitter, Weil, Gotshal & Manges LLP
a number of items, including a side-by-side regime that may effectively shield US-based multinational companies from the application of the global mini - mum tax rules (eg, the income inclusion rule and the undertaxed profits rule) beginning in 2026. However, Section 899 or a similar provision could be enacted in future legislation depending on the implementation of the G7 deal and the Side-by-Side Package. Other Tax Provisions Relevant to Businesses Expansion of tax base for business interest limitation The TCJA added a provision limiting the amount of net business interest expense that a taxpayer can deduct. The limitation on this deduction was set at 30% of a taxpayer’s adjusted taxable income (ATI). Prior to 2022, ATI was defined as a company’s earnings before interest, taxes, deductions, and amortisation expens - es (EBITDA). After 2022, the definition was changed to only earnings before interest and taxes (EBIT). The OBBA restores EBITDA as the definition of ATI, which provides taxpayers with a wider income base to determine the ceiling for the permitted interest expense deduction. Notably, the OBBA excludes cer - tain foreign income amounts from the limitation (Sub - part F income, NCTI, and any gross-ups for deemed paid FTCs). Bonus depreciation and research and development (R&D) expense deductions are made permanent The OBBA restores and makes permanent a 100% bonus depreciation deduction for qualifying property. Qualifying property generally includes tangible prop - erty that is used in a trade or business or for the pro - duction of income. This provides an incentive, through immediate tax savings, for taxpayers to invest in quali - fied property. The OBBA makes permanent a provision that allows domestic R&D expenses paid or incurred in taxable years beginning after 31 December 2024, to be: • immediately 100% deductible or • deductible over a period of not less than 60 months starting from the first month the taxpayer benefits from such R&D expenses.
Notably, foreign R&D expenditures will continue to be amortised over 15 years. Qualified business income deduction made permanent Under the TCJA, certain taxpayers that operated busi - nesses through a pass-through entity (ie, a fiscally transparent entity) were able to deduct up to 20% of qualifying business income (generally net income from certain domestic trades or businesses). This deduction was set to expire at the end of 2025, but the OBBA makes it permanent. Energy Transition and Credit Provisions The Inflation Reduction Act of 2022 (IRA) significantly expanded the energy transition tax credits available in the US by extending existing energy transition tax credits and creating various new credits and bonus credits. In a significant policy reversal, the OBBA cur - tails and, in some cases, eliminates many of these energy transition tax credits. Early termination for solar and wind credits Under prior law, solar and wind projects were eligible for energy transition tax credits with a long runway. Production tax credits (PTCs) and investment tax credits (ITCs) were available for all clean electricity project types (including solar and wind) that began construction during or after 2025 with phasedown (at the earliest) for projects that begin construction after 2033. Under the OBBA, the solar and wind project credits are subject to early termination. More specifi - cally, such projects that begin after 4 July 2026 must now be placed in service by the end of 2027. PTC and ITC largely unchanged for other project types Other renewable electricity technologies (nuclear, hydropower, geothermal) continue to have a long run - way. These project types continue to have the benefit of an extended phasedown that provides: • 75% credit for projects that begin construction in 2034; • 50% credit for projects that begin construction in 2035; and • 0% credit for projects that begin construction after 31 December 2035.
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