U.S. Treasury Says Foreign-Made Vehicles Can Access EV Tax Credits

By Christian Roselund

On 29 December 2022 the U.S. Treasury Department issued guidance which clarifies that vehicles made outside of North America can qualify for the new tax credits for commercial EVs in the U.S. Inflation Reduction Act (IRA). This section applies to leased vehicles as well, giving consumers a way to access the benefits of the tax credit for vehicles made outside North America. Treasury’s guidance was welcomed in a statement by the European Union, which is pushing for similar changes to be made to the tax credit for consumer EVs.

The IRA both modified the existing $7,500 Section 30D tax credit for consumers to buy EVs and introduced a new Section 45W tax credit for commercial EVs. The changes to the Section 30D credit included a requirement that the vehicle be manufactured in North America, as well as introducing new requirements around sourcing of materials. Both EU and German officials have protested the North American assembly requirement, and European Commissioner for Trade Valdis Dombrovskis has filed a complaint to the World Trade Organization.

However, the Section 45W tax credit includes no such language. This is noted in a newly released frequently asked questions document presented by the U.S. Treasury’s Internal Revenue Service, which also clarifies how the tax credit is claimed in a leasing situation. In its coverage, Electrek concluded that this means that dealerships can access the tax credits for EVs, and then pass these savings on to consumers in the form of reduced lease payments.

The European Union welcomed the clarification in a statement on the same day that Treasury’s guidance was released, stating that this “reflects the constructive engagement as part of the EU-US Inflation Reduction Act Task Force at senior official level.” It notes that the clarification means that the credits will be available to EU manufacturers “without requiring changes to established or foreseen business models of EU producers,” a situation that it calls a “win-win” that strengthens EU-US cooperation.

U.S. Senate Energy and Natural Resources Chair Joe Manchin had insisted on made-in-America language before he would allow the bill to pass. Manchin responded to the guidance by calling on Treasury to pause implementation of the Section 45W and 30D tax credits and ensure only EVs made in North America can qualify. “The information released today from the Treasury Department outlining how they will be implementing the commercial and consumer EV tax credits bends to the desires of the companies looking for loopholes and is clearly inconsistent with the intent of the law,” reads a statement on the Energy and Natural Resources Committee’s site.

Manchin also stated that he plans to introduce legislation to clarify the intent of the law and prevent Treasury’s implementation from moving forward. However, other Congressional Democrats want the made-in-America requirement delayed, not strengthened. In September Senator Raphael Warnock (D-GA) introduced a bill to delay the made in America requirement until after 2025. A similar bill was introduced in the House in November and attracted five total co-sponsors.

Source: Frequently asked questions related to new, previously-owned and qualified commercial clean vehicle credits (Internal Revenue Service)

News analysis: Cars assembled outside NA may qualify for EV tax credit, per new IRS note (Electrek)