Due to the enactment of the One Big Beautiful Bill (OBB), borrowers negotiating financing for energy tax credit eligible projects that began construction after 2024 are requesting representations from their lenders that the lenders are not specified foreign entities and covenants that the lenders will not become specified foreign entities.  This post explains the reason borrowers need these assurances and provides a guide to the complicated statutory test to assist lenders in determining whether they can provide their borrowers the requested assurances. 

A borrower entity could be deemed a foreign influenced entity if 15 percent or more of its debt is held by a specified foreign entity. See §7701(a)(51)(D)(i)(I)(dd).¹  Being a foreign influenced entity would mean that projects owned by that entity would not qualify for for certain energy tax credits. Therefore, the borrower and its tax investors need to know that no lender is a specified foreign entity (or at least that such lenders collectively hold less than 15 percent of the debt).

I. There is a five clause definition of specified foreign entity:

(i) a foreign entity of concern described in subparagraph (A), (B), (D), or (E) of section 9901(8) of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (Public Law 116-283)):²

(ii) an entity identified as a Chinese military company operating in the United States in accordance with section 1260H of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021),

(iii) an entity included on a list required by clause (i), (ii), (iv), or (v) of section 2(d)(2)(B) of Public Law 117-78 (135 Stat. 1527) [(i.e., Uyghur Forced Labor Prevention Act)],

(iv) an entity specified under section 154(b) of the National Defense Authorization Act for Fiscal Year 2024 (Public Law 118-31);³

(v) a foreign-controlled entity. § 7701(a)(51)(B).

II. There’s a five clause definition of foreign-controlled entity:

(i) “the government (including any level of government below the national level) of a covered nation, ⁴

(ii) “an agency or instrumentality of a government described in clause (i),

(iii) “a person who is a citizen or national of a covered nation, provided that such person is not an individual who is a citizen, national, or lawful permanent resident of the United States,

(iv) “an entity or a qualified business unit (as defined in section 989(a)) incorporated or organized under the laws of, or having its principal place of business in, a covered nation, or

(v) “an entity (including subsidiary entities) controlled (as determined under subparagraph (G)) by an entity described in clause (i), (ii), (iii), or (iv).” § 7701(a)(51)(C).

[1] Unless otherwise noted, all references to “section” or “section symbol” are to the Internal Revenue code of 1986, as amended.

[2] Explanation of subclauses (A) through (E) of clause (i):

(A) “designated as a foreign terrorist organization by the Secretary of State under section 1189 of Title 8 of the US Code”;

(B) “included on the list of specially designated nationals and blocked persons maintained by the Office of Foreign Assets Control of the Department of the Treasury”;

(C) “owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is listed in section 2533c  of Title 10 of the US Code”;

[Explanation: section 2533c(d)(2) of Title 10 of the US Code refers to North Korea, China, Russia and Iran.]

(D) “alleged by the Attorney General to have been involved in activities for which a conviction was obtained under—

“(i) chapter 37 of title 18 (commonly known as the “Espionage Act”) (18 U.S.C. 792 [791] et seq.);
(ii) section 951 or 1030 of title 18;
(iii) chapter 90 of title 18 (commonly known as the “Economic Espionage Act of 1996”);
(iv) the Arms Export Control Act (22 U.S.C. 2751 et seq.);
(v) sections 2274, 2275, 2276, 2277, or 2284 of title 42;
(vi) the Export Control Reform Act of 2018 (50 U.S.C. 4801 et seq.); or
(vii) the International Economic Emergency Powers Act 3 (50 U.S.C. 1701 et seq.)”; or

(E) “determined by the Secretary, in consultation with the Secretary of Defense and the Director of National Intelligence, to be engaged in unauthorized conduct that is detrimental to the national security or foreign policy of the United States under this chapter.”

[3] The entities listed in section 154(b) of the National Defense Authorization Act for Fiscal Year 2024 are:

“(1) Contemporary Amperex Technology Company, Limited (also known as ‘‘CATL’’).
(2) BYD Company, Limited.
(3) Envision Energy, Limited.
(4) EVE Energy Company, Limited.
(5) Gotion High tech Company, Limited.
(6) Hithium Energy Storage Technology company, Limited.
(7) Any successor to an entity specified in paragraphs (1) through (6).”

[4] Section 7701(a)(51)(I)(ii) of the Code provides that the term covered nation is defined 4872(f)(2) of Title 10 of the US Code. That provision of Title 10 provides that the following countries are covered nations:

“(A) the Democratic People’s Republic of North Korea;
(B) the People’s Republic of China;
(C) the Russian Federation; and
(D) the Islamic Republic of Iran.”