This article was originally published by Radio Free Asia and is reprinted with permission.
The Senate Finance Committee voted 27-0 on Thursday to approve legislation that would allow people and businesses operating in both Taiwan and the United States to only be taxed in one jurisdiction.
A key part of efforts to normalize ties between the United States and the self-governing island, which Beijing claims as a renegade province but enjoys close military ties with Washington, the bill now heads to the full Senate, where it is expected to receive similar support.
Sen. Ron Wyden, a Democrat from Oregon who serves as committee chair, said he expected the legislation to be encoded into the tax code “within months not years” given its broad support.
“The momentum behind the proposal comes from the fact that the Senate, on a bipartisan basis, fully supports strengthening America’s economic partnership with Taiwan,” Wyden said at the hearing.
Taiwan is the United States’ 9th largest trade partner, according to the Census Bureau, with a similar volume of trade as with India. The island makes more than two-thirds of the world’s microchips, with one company, TSMC, responsible for 90% of the most advanced chips.
Wyden said the bill would simplify cross-border investment by making life easier for business people and companies operating in both the United States and Taiwan, and reduce the tax burden.
“Let’s say somebody from Portland needs to go to Taipei for three weeks as part of their job training,” he said. “Right now, they may have to fill out a Taiwanese tax return and deal with all kinds of U.S. tax filing headaches. Once we get this done, they go to Taiwan for a short business trip, they do their job, come home and not worry.”
No treaty
Sen. Mike Crapo, a Republican from Idaho and his party’s ranking member on the committee, said that the bill includes a clause that will prevent it from taking effect without reciprocal laws in Taiwan.
He noted that Taiwan was the “second-largest export destination for Idaho products,” with large exports of electrical goods and machinery, and that the island’s extensive trade ties with the United States meant the reform would also receive widespread support in Taiwan.
“Deepening ties with Taiwan and its vibrant democracy is in our nation’s best interest,” Crapo said. “Taiwan is our largest trading partner with whom we do not have an income tax treaty.”
“For Taiwanese workers performing services in the U.S., this bill provides that they can spend up to half a year in the U.S. before subjecting their wages to U.S. income tax, encouraging those workers to invest more time in U.S. operations,” he said.
But Crapo added that Taiwan’s unique status in Sino-American diplomacy, with the U.S. eschewing formal ties with the democratic island, meant the changes were not coming from a formal tax treaty.
“Taiwan’s unique status precludes it from dealing with double tax issues through a traditional tax treaty,” he said, noting that the Foreign Affairs Committee usually takes charge of treaty negotiations.
Instead, he said, the Finance Committee was enacting the changes directly into the U.S. tax code, awaiting a reciprocal Taiwanese bill.
“The process we’re considering today should not be viewed as a new template to short-cut or get around tax treaties,” the lawmaker said. “Taiwan’s very unique status requires a very unique solution.”
Security aspect
Wyden said there was a national security element to the bill, with Beijing trying “to intimidate and isolate Taiwan through diplomatic and economic coercion” to force it to “reunite” with the mainland.
As the global leader in the manufacture of “the chips used in TVs and iPhones, but also in advanced weapons and military equipment,” he said, “Taiwan plays a key role in the security of democratic nations.”
But Wyden said the economic impact for the United States would also be significant, and build off the CHIPS Act’s $52.7 billion of subsidies for chipmaking on domestic soil, which he said has already led Taiwanese chipmakers to shift some operations to America.
“$45 billion was invested in the United States from Taiwan in the semiconductor sector,” Wyden said. “We anticipate billions of dollars more translating into good paying jobs across the country to ensure that our country continues to grow these investments in America.”
“We don’t want these investments to fall through,” he said, “or go to other countries because we’re not providing double-tax relief.”
