Housing Groups Raise Concerns about Global Minimum Tax

A group of 30 national housing organizations recently sent a letter to Treasury Secretary Janet Yellen to protect the LIHTC and other key financing tools from the potential effects of a global corporate minimum tax on large multinational corporations.

The global minimum tax deal has been negotiated through the Organization for Economic Cooperation and Development (OECD), and it is aimed at ending an erosion of government revenues while denying advantages to tax-haven countries. OECD's model rules contemplate a 15 percent global minimum tax on large multinational businesses. And under the OECD’s Pillar 2 model rules, companies paying less than a 15 percent tax rate domestically would be at risk of paying a tax to foreign countries where they also do business.

One level deeper: The minimum tax proposal has been agreed upon by nearly 140 countries as an effort to avoid a “race to the bottom” in which countries lower domestic corporate tax rates to attract foreign investment. The Biden administration has endorsed the idea of a global minimum tax. Overall, nearly 140 countries have reportedly agreed to the tax, but Poland recently objected to a European Union directive.

The housing groups' concern is that investors in LIHTC and other community development tax credits and financing tools could find their incentive to invest in LIHTC developments significantly reduced. The letter states, “A survey of major investors in the [Housing Credit] market found that minimally 48 percent of the equity financing, and likely much more, would be at risk if the new OECD rules were to move forward. Risking the loss of anywhere near this magnitude by disincentivizing these investments would devastate the impact of the [Housing Credit], which is responsible for virtually all the affordable rental housing built or preserved in America since its inception more than 36 years ago. It is very likely that such a disincentive will extend to other development finance tools.”

Watch for: The Biden administration’s fiscal year 2023 budget proposal stated that it “would provide a mechanism to ensure U.S. taxpayers would continue to benefit from U.S. tax credits and other tax incentives that promote U.S. jobs and investment” as part of a new proposal to implement the OECD plan in the United States. However, details of this proposal have not been released.

If the Biden administration is considering refundability or direct pay models as a work-around for tax credits, this would fundamentally alter the structure of the LIHTC model and would require major Congressional action.