Senate Committee Backs Bill to Deepen U.S. Economic Ties With Taiwan

The Senate Finance Committee on Thursday handed a invoice that may deepen financial ties between the US and Taiwan and successfully create a tax treaty that’s anticipated to pave the way in which for extra Taiwanese funding within the American semiconductor business.

The trouble by Congress may inflame tensions between the US and China at a time when the Biden administration has been working to stabilize the connection. President Biden dispatched three cabinet officials to Beijing this summer time to enhance dialogue between the world’s two largest economies.

In a uncommon demonstration of bipartisanship, the tax-writing committee handed the invoice unanimously. Though Republicans and Democrats have vastly totally different views on most areas of tax coverage, the 2 events are united of their help for Taiwan and antipathy for China — which denies the island’s independence.

The laws would finish the double taxation between the US and Taiwan that has strained enterprise ties for years. At the moment, Taiwanese corporations and people doing enterprise in the US are taxed in each locations, and vice versa for U.S. corporations, making it costly for the companies to put money into each other.

The US has tax treaties with many international locations that eradicate double taxation, nevertheless it has been unable to type such a treaty with Taiwan as a result of the 2 governments don’t have official diplomatic ties. The US established diplomatic ties with China in 1979 and broke off formal relations with Taiwan. Since then, each U.S. administration has tried to take care of an ambiguous place on Taiwan based mostly on the “One China” policy.

Normally, U.S. administrations strike tax treaty agreements with different international locations which can be ratified by the Senate. To avoid the traditional tax treaty course of, Congress has been engaged on laws that may change the tax code straight so long as Taiwan enacts comparable advantages for People who wish to do enterprise there.

The invoice was drafted with enter from Home lawmakers and it may change into legislation this 12 months, if the total Senate and Home approve it and President Biden indicators it. The Biden administration has expressed help for ending double taxation with Taiwan.

Lawmakers view the laws as a technique to bolster American manufacturing and speed up funding within the U.S. semiconductor business. Congress authorized greater than $50 billion in help for the sector as a part of the CHIPS Act laws that was enacted final 12 months and Taiwan, which is a world chief within the manufacturing of microchips, has been planning to construct manufacturing amenities in the US.

Senator Ron Wyden, Democrat of Oregon, who chairs the Senate Finance Committee, mentioned on Thursday that the laws would assist make these plans doable.

“To make sure that our nation continues to develop these investments in America, aid of double taxation between the U.S. and Taiwan is a crucial subsequent step,” Mr. Wyden mentioned. “We don’t want these investments to fall by means of or go to different international locations as a result of we aren’t offering double-tax aid.”

Taiwan Semiconductor Manufacturing Firm has been planning a brand new chip manufacturing facility in Arizona, however the undertaking has been delayed amid issues about labor shortages. The corporate mentioned final 12 months that the shortage of a bilateral tax treaty had increased the cost of investing in the United States.

Nearer enterprise ties are solely a part of the enchantment of the tax laws for lawmakers.

Mr. Wyden mentioned it could additionally reinforce U.S. help for Taiwan at a second when Beijing is displaying elevated aggression towards the island, which it considers a part of China.

“Not solely is Taiwan a vital buying and selling associate; it’s a democracy that shares our values and faces a rising menace,” he mentioned.

Republicans on the Senate Finance Committee additionally voiced help for nearer financial ties with Taiwan.

Senator Chuck Grassley, Republican of Iowa, famous that Taiwan was a significant importer of corn and soybeans from his state and mentioned that the tax settlement would ship a robust message to China.

“I look ahead to the expanded alternatives for financial cooperation with Taiwan that this invoice affords Iowa companies,” Mr. Grassley mentioned. “Extra importantly, strengthening our ties with our democratic allies in Asia, as this invoice does, is strictly the kind of step this committee ought to take to counter the worldwide ambitions of an more and more hostile China.”

China criticized the laws on Thursday and prompt that it was a breach of the “One China precept.”

“China is at all times towards any nation negotiating financial and commerce agreements of sovereign implication or official nature with China’s Taiwan area,” mentioned Liu Pengyu, a spokesman for the Chinese language embassy in Washington. “The U.S. should not negotiate agreements with sovereign implication or official nature with China’s Taiwan area or ship any improper sign to the ‘Taiwan independence’ separatist forces within the identify of commerce and financial interactions.”

The Senate Overseas Relations Committee handed a separate invoice this summer time to handle double taxation with Taiwan, and a compromise might must be reached between the committees. Lawmakers on Thursday expressed optimism that the laws could possibly be handed and despatched to Mr. Biden within the coming months.

“We very a lot share your aim to be sure that corporations which can be engaged between the U.S. and Taiwan should not topic to double taxation,” Jay Shambaugh, the Treasury beneath secretary for worldwide affairs, informed the Senate Overseas Relations Committee in July.

He added, “It’s an extremely vital provide chain, it’s an extremely vital buying and selling relationship, and its vital that we don’t have double taxation points.”