Tax Package Delay Puts Taiwan's US Chip Investment in Question – Bloomberg Tax
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By Chris Cioffi
Some companies doing business between Taiwan and the US are growing concerned that if the stagnating $78 billion tax package withers, Taiwan-specific provisions that would provide double taxation relief might get left behind too.
Higher-profile business tax breaks and a boosted child tax credit have headlined debate over the bill, while provisions in the bill to give tax treaty-like benefits to Taipei have flown under the radar. The package has now become a lightning rod in internal Senate GOP politics, despite easily passing the House and being a top priority for business and family advocacy groups.
Businesses and advocates view the Taiwan provisions as important for the future of semiconductor investment in the US by Taiwanese companies. When advocates ask Congress what might happen to the Taiwan-specific provisions if the overall package doesn’t pass the Senate, the response is opaque.
“When they suggest some other path, there’s not really any discussion about what that looks like,” said Rupert Hammond-Chambers, the president of the US-Taiwan Business Council. “Cold water is just thrown over the entire suggestion of breaking Taiwan out.”
House lawmakers, who sent the tax bill to the Senate months ago, have cited the importance of provisions like the Taiwan tax fix.
“Bilateral tax engagement with Taiwan is a win-win for both nations and demonstrates our commitment to Indo-Pacific allies,” House Ways and Means Trade Subcommittee Chair Adrian Smith (R-Neb.) said in an email. “The Senate should stop wasting time and swiftly take up and pass the bill.”
Senate Majority Leader Charles Schumer (D-N.Y.) said in a letter to lawmakers there’s still an opportunity in the weeks and months ahead to make progress on bipartisan bills like the tax package, though it would require GOP cooperation that has waned in recent weeks. The Taiwan provisions were not cited in the letter.
Senate Finance Committee ranking member Mike Crapo (R-Idaho) is opposed to the package for reasons unrelated to the Taiwan provisions, and two top Republicans on the panel who are vying to succeed Senate Minority Leader Mitch McConnell (R-Ky.) as the chamber’s party leader have joined Crapo in opposition. Crapo has the support of McConnell in efforts to block the package.
Building on the success of trade legislation, the Taiwan tax bill aims to extend benefits similar to those in tax treaties to Taipei without angering Beijing, which sees Taiwan as part of China.
Taiwan policy has been a rare spot of bipartisanship in this fractured Congress, and the Biden administration has sought to leverage funding and incentives from the 2022 technology and infrastructure law in an effort to court high-tech US investment. The tax bill would only help further that goal, Hammond-Chambers said.
“The Chips and Science Act funding that is now being dispersed at an increasingly rapid rate raises expectations that Taiwan’s involvement in the US semiconductor industry is only going to expand,” he said. “But an important and missing piece right now is the passage of this tax legislation.”
The US announced plans Monday to award chip powerhouse Taiwan Semiconductor Manufacturing Co. $6.6 billion in grants and loans totaling as much as $5 billion to help TSMC construct additional semiconductor facilities in Arizona. The preliminary agreement would support a total package in the neighborhood of $65 billion and calls for TSMC to add a third factory in Phoenix.
An emailed request for comment from TSMC went unreturned.
Taiwanese officials last year estimated the effective tax rate on firms’ US profits was 51%, citing the withholding charges on dividends sent back home. And they’ve said that until there’s a taxation fix, the issue will continue to be an obstacle for some companies.
The legislation attempts to mimic a tax treaty that reduces taxes for income like royalty payments and dividends and would provide a mechanism to give Congress a final say over future tax agreements.
It would provide some double-tax relief as soon as legislation is enacted in the US and matched by Taiwan in its domestic law. Congress’ scorekeeper said the bill would have practically no impact on revenue if it were implemented.
A standalone bill focused on Taiwan double-tax relief was passed enthusiastically by House and Senate committees last year, but now that it’s wrapped up into a larger package advocates have a trickier task.
“It’s always a problem when you’re a prisoner of other issues; the Taiwanese are not going to step in and tell the Congress what it ought to do on the child tax credit,” said William Reinsch, senior advisor at the Center for Strategic and International Studies. “All they can say is, ‘This particular piece is really, really important and here’s why.’ ”
If the bigger package is declared dead, an attempt to get the popular Taiwan bill provisions through Congress on their own could still face stiff headwinds, raising “questions about not just the Senate but how it could get through the House on its own,” said Ray Beeman, a former Ways and Means GOP tax counsel who now leads EY’s Washington Council practice.
The Senate’s calendar is packed, the nearing 2024 election will act as an even bigger drag on legislating, and Sen. Rand Paul (R-Ky.), a longstanding tax treaty opponent, could block attempts at moving the bill quickly in the Senate.
Beeman said Taiwan advocates hoping for relief will have to wait and see the endgame on the tax package, but there’s always a sliver of hope for the popular provisions.
Supporters in Congress say they’re committed to the Taiwan legislation, even if the broader bipartisan bill were to eventually be scuttled.
Rep. Suzan DelBene (D-Wash.), along with Nebraska’s Smith, Reps. Judy Chu (D-Calif.) and Nicole Malliotakis (R-N.Y.), introduced a resolution calling for action on avoiding double taxation with Taiwan last year. DelBene said if the Senate doesn’t take action on the tax package the Taiwan bill shouldn’t go away.
“I have been a staunch advocate for reducing double taxation on Taiwanese and American business,” she said in a statement. “And should the Senate fail to advance the bipartisan tax package, I will continue looking for other paths forward for these important provisions.”
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