Congress looks to remove a tax stumbling block for Taiwan

Two competing proposals to end the double-tax faced by companies that do business in the U.S. and Taiwan are gaining steam in Congress, bringing Washington closer to strengthening economic ties with the island despite protests from China.

The first, a bipartisan bill that would authorize the Biden administration to negotiate a tax agreement with Taiwan, advanced out of the Senate Foreign Relations Committee on Thursday. It’s sponsored by the panel’s two leaders, Sens. Bob Menendez, D-N.J. and James Risch, R-Idaho.

Another bipartisan bill would reduce taxes on Taiwanese businesses and workers in the U.S. outright as long as Taipei reciprocates. That legislation is being written by heads of the Senate Finance Committee and House Ways and Means Committee, who released a discussion draft last week.

“There’s an interest in moving fairly quickly,” an aide to Senate Finance Committee Chairman Ron Wyden, D-Ore. told Semafor.

Unlike its other top trade partners, the U.S. has never negotiated a tax treaty with Taiwan that shields businesses from having their profits taxed by both governments — a product of the fact that Washington and Taipei don’t have official diplomatic ties. Lawmakers are now looking to address this longstanding issue in part because it’s threatening to become a major impediment to attracting more investment by Taiwanese semiconductor companies in the U.S. under the CHIPS and Science Act.

Last year, the Taiwanese chip giant TSMC, which is building a major plant in Arizona, wrote a letter to the Commerce Department warning that taxes were a stumbling block that could prevent its domestic suppliers from coming to the U.S. Taiwanese officials have also been pushing publicly for relief. Treasury Secretary Janet Yellen acknowledged earlier this year that the lack of a tax agreement with Taiwan was a “significant problem” for businesses and promised to work on the issue.

The two bills now working their ways through Congress offer different upsides, in the eyes of advocates. The draft bill from Wyden and House Ways and Means Chairman Jason Smith, R-Mo. would provide immediate tax relief assuming that Taiwan moves to change its own laws. The proposal from Menendez and Risch would empower the Biden administration to negotiate a broader tax treaty to be approved by Congress, but as a result would take more time.

“The Finance one definitely hits on a lot of our major concerns, but also having Treasury negotiate in line with other tax treaties is something we’re supportive of as well,” Anne Gordon, vice president for international tax at the National Foreign Trade Council, told Semafor.

A spokesperson for Taiwan’s office in Washington welcomed Congress’ efforts to address double taxation, without weighing in on either specific legislative proposal. “We look forward to working with Congress and the Biden administration to find feasible solutions,” the spokesperson said in a statement to Semafor.

Already, there’s talk of combining both bills. Menendez told reporters last Thursday he was “looking forward to working together to see if we can have an amalgam of them.” A second Wyden aide argued that their bill had certain advantages, including crucial bipartisan support in the House, “the end result here is we’re going to end up working together.”

The Biden administration has yet to endorse either piece of legislation, but has provided input behind the scenes. According to Sen. Ben Cardin, D-Md., the administration has offered some “suggestions” for the Foreign Relations Committee’s bill, though he was unsure if they had been incorporated. The second Wyden aide said the Finance committee’s bill was written with help from both the Taiwanese government and Treasury. Both the State Department and Treasury declined to comment.

One possible reason for the administration’s quiet: It’s trying to repair relations with China, which is already expressing its displeasure at any deal that could create closer formal economic ties between the U.S. and Taiwan, which Beijing claims as its own territory.

“The U.S. must not negotiate agreements with sovereign implication or official nature with China’s Taiwan region, which would send wrong signal to the ‘Taiwan independence’ separatist forces in the name of trade and economic interactions,” Chinese Embassy spokesperson Liu Pengyu said in a statement to Semafor.

Cardin brushed the possibility of Chinese backlash aside.

“If you mention Taiwan, they get bothered,” he said. “We’re not going to be judged by how China responds to what we do.”