Senate Finance Committee Approves Tax Bill to Strengthen US-Taiwan Economic Ties
The Senate Finance Committee Unanimously Approves Bill to Provide Relief for American and Taiwanese Workers and Businesses
The Senate Finance Committee has voted unanimously on a bill to provide relief for American and Taiwanese workers and businesses from double taxation. This legislation, known as the U.S.-Taiwan Expedited Double Tax Relief Act, aims to strengthen the partnership between the two sides.
Sen. Ron Wyden (D-Ore.), who serves as committee chair, emphasized the importance of Taiwan as a critical trading partner. He highlighted the significant investments made by Taiwan in the United States, particularly in the semiconductor sector, which have resulted in the creation of good-paying jobs across the country.
Taiwan is currently the United States’ ninth largest trading partner, with bilateral trade between the two sides totaling over $120 billion in 2022. The island is home to Taiwan Semiconductor Manufacturing Corporation (TSMC), the world’s biggest contract chipmaker, responsible for producing over 90 percent of the world’s most advanced semiconductors.
To ensure continued growth in these investments, Mr. Wyden stressed the need for relief from double taxation between the U.S. and Taiwan. He emphasized that failing to provide such relief could result in these investments going to other countries, which would hamper the growth of the domestic semiconductor industry.
Legislation
Sen. Mike Crapo (R-Idaho) questions U.S. Trade Representative Katherine Tai during a Senate Finance Committee hearing on Capitol Hill in Washington on March 31, 2022. (Drew Angerer/Getty Images)
The draft of the bill was announced in July through a joint collaboration between Mr. Wyden, Finance Committee ranking member Mike Crapo (R-Idaho), and House Ways and Means Committee leaders Chair Jason Smith (R-Mo.) and Ranking Member Richard Neal (D-Mass.).
The legislation aims to significantly reduce withholding taxes on dividends, interest, and royalties paid on cross-border investments. For example, the bill proposes a 10 percent withholding tax rate for interest and royalties, instead of the current 30 percent rate imposed on U.S. source income received by nonresident aliens and foreign companies.
Mr. Crapo highlighted the impact of the current 30 percent dividend withholding tax on Taiwanese companies with a U.S. presence, stating that it hinders additional U.S. investment. He emphasized that the bill’s provisions, including applying permanent establishment rules, would reduce barriers for smaller and mid-sized Taiwanese companies, strengthening domestic supply chains.
If enacted, the legislation would create a new section of the Internal Revenue Code, providing relief for workers and businesses in both the U.S. and Taiwan.
The 27-0 vote on Sept. 14, which included support from Sen. Bob Menendez (D-N.J.), chairman of the Senate Foreign Relations Committee, demonstrates bipartisan backing for the bill. In May, Mr. Menendez and other senators introduced the Taiwan Tax Agreement Act of 2023, which passed the Senate Foreign Relations Committee in July. A companion version of the legislation has been introduced in the House.
The Taiwan Tax Agreement Act of 2023 would authorize the president to negotiate and enter into a tax agreement with Taiwan, allowing businesses in the United States and Taiwan to avoid double taxation.
China
Mr. Wyden emphasized the need for greater economic cooperation with Taiwan in light of Beijing’s aggression against the island and the surrounding region. He highlighted China’s efforts to intimidate and isolate Taiwan through diplomatic and economic coercion, as well as military actions.
Taiwan’s defense ministry recently reported one of China’s biggest incursions, with 68 Chinese warplanes and 10 Chinese navy vessels near its territory. The CCP employs various tactics, including military coercion, disinformation campaigns, and economic coercion, to sway public opinion and assert its rule over Taiwan.
Despite Beijing’s view of Taiwan as a renegade province, Mr. Wyden emphasized that Taiwan is a full-fledged democracy with its own government, military, constitution, and currency. He stressed the importance of Taiwan’s role in the security of democratic nations and the need for Congress to work towards stabilizing the region.
Hsiao Bi-khim, Taiwan’s de facto ambassador to the United States, expressed gratitude to senators from both parties for their commitment to resolving the double taxation issue. She described the bill as an important milestone towards relief in double taxation, with the goal of incentivizing more two-way investments and deeper Taiwan-U.S. economic ties.
How does the bill aim to reduce barriers for smaller and mid-sized Taiwanese companies and strengthen domestic supply chains
The bill in the Senate Finance Committee highlights the bipartisan support for providing relief to American and Taiwanese workers and businesses. It acknowledges the economic significance of Taiwan as a trading partner and the importance of attracting and retaining investment in key sectors like semiconductors.
The bill proposes concrete measures to address the issue of double taxation between the U.S. and Taiwan. By significantly reducing withholding taxes on dividends, interest, and royalties paid on cross-border investments, it aims to create a more favorable investment environment for both countries. For example, the proposed 10 percent withholding tax rate for interest and royalties would replace the current 30 percent rate, providing greater incentives for investment.
The impact of the current dividend withholding tax on Taiwanese companies with a U.S. presence is highlighted as a hindrance to additional investment. The bill’s provisions, including the application of permanent establishment rules, would help reduce barriers for smaller and mid-sized Taiwanese companies, thereby strengthening domestic supply chains.
The unanimous approval of the bill by the Senate Finance Committee reflects the recognition of the potential benefits of this legislation for both American and Taiwanese workers and businesses. The bill’s passage would not only provide relief from double taxation but also strengthen the partnership between the U.S. and Taiwan.
It is important to note that this legislation aligns with the broader goal of maintaining and expanding economic ties between the two countries. With bilateral trade between the U.S. and Taiwan exceeding $120 billion in 2022, it is clear that both sides have much to gain from fostering a strong economic partnership.
The bipartisan collaboration behind this bill, with Sen. Ron Wyden taking a lead role as committee chair and Sen. Mike Crapo as ranking member, demonstrates the recognition of the importance of this issue across party lines. Furthermore, the joint collaboration with House Ways and Means Committee leaders Chair Jason Smith and Ranking Member Richard Neal underscores the commitment to finding bipartisan solutions to promote economic growth and strengthen trade relations.
In conclusion, the unanimous approval of the U.S.-Taiwan Expedited Double Tax Relief Act by the Senate Finance Committee represents an important step towards providing relief for American and Taiwanese workers and businesses. By addressing the issue of double taxation and creating a more favorable investment environment, this legislation aims to strengthen the economic partnership between the U.S. and Taiwan. The positive bipartisan support behind this bill reflects the recognition of the potential benefits for both countries and emphasizes the importance of maintaining and expanding economic ties.
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