‘Pass or Fail’
The PFE restrictions were enacted amid bipartisan concerns that adversarial nations — specifically China, Russia, Iran, and North Korea — were benefiting from U.S. tax incentives. This led to what Ross Reiter, a partner in Deloitte’s Global Investment & Innovation Incentive (Gi3) Services practice, described as a strict “pass or fail” test.
There are two primary ways a project can be disqualified under the PFE rules. The first is if the taxpayer claiming the credit is itself a PFE, either by being a “specified foreign entity” or a “foreign-influenced entity” through ownership, debt, or effective control tests. The second, and the main focus of the new guidance, is if the project includes “material assistance” from a PFE in the construction of facilities or the production of components.
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