How the New Inflation Reduction Act Can Help Your Company
The United States just passed the Inflation Reduction Act, the most significant climate bill in 50 years. However, like most U.S. bills, the climate is not the only topic addressed. Incoming European companies need to know about new specific changes to U.S. tax laws and to understand how the bill is creating sweeping changes to the green energy and pharma sectors. TABS has the answers to all these questions and more.
How the New Inflation Reduction Act Can Help Your Company
The Inflation Reduction Act (IRA) has received significant press for its actions on climate and healthcare. Many incoming or expanded European businesses will want to know how the Act will affect them. The green energy sector and foreign companies that utilize R&D on U.S. soil are the primary beneficiaries. The bill will provide benefits to most corporations as it levies higher taxes only on those companies worth a billion dollars or more. This bill is a boon for incoming business; some more than others, but a boon, nonetheless.
Tax Credits for Green Energy and R&D
To reduce carbon emissions, this bill has flooded the green energy sector with incentives. From production to installation, there is money for every part of the industry. The bill allocates thirty billion dollars worth of tax credits for installing solar panels, wind turbines, and Electric vehicles (EVs), as long as production is executed in the U.S.
The green energy industry is not the only one to reap the benefits of this new act. The U.S. government has incentivized innovation with tax credits in the past. The old policy regarding R&D had a 250,000 dollar tax credit ceiling. Now, this number has doubled. In addition, companies can use this larger tax credit for everything involved in their R&D. However, the old restrictions to qualify remain in place. To qualify, companies must generate less than five million dollars in income and have generated revenue for less than five years. For those companies that are eligible, this changes the playing field as to where they should consider producing R&D.
For larger corporations, the restrictions and taxes levied by this bill are substantial. Two tax systems have been utilized in the IRA: a fifteen percent alternative minimum tax (AMT) and a one percent share buyback tax. AMT only applies to large corporations with more than 1 billion dollars in adjusted financial statement income profits. This new stock tax policy mainly affects corporations doing substantial buybacks. The legislation will only affect public companies and will not affect the transfer of privately owned stocks.
While these discussed features of the bill have obvious effects for corporations, other features have more subtle ramifications on running a business in the U.S. The key healthcare reforms in the bill, such as lowering the cost of insulin and other life-saving drugs, only apply to consumers on Obamacare/Medicaid. Still, this price ceiling will cost the pharmaceutical industry a considerable amount of money. It seems likely that the pharma companies will be forced to raise drug rates for non-Medicaid citizens, which would then raise rates for employers.
Beneficial
The Inflation Reduction Act was produced with two main goals: to lower inflation and combat climate change. Luckily for incoming European businesses, this legislation will be overwhelmingly beneficial to their bottom line.