Lawmakers near Taiwan tax deal, risking anger from China

U.S. lawmakers unveiled a proposal that would eliminate so-called double taxation of Taiwanese workers and firms in America, a step toward a major priority for Taipei and Washington that risks angering Beijing.

The Taiwan deal, which is part of a broader tax package announced Tuesday, would reduce withholding taxes on qualified Taiwanese residents doing business in the U.S., extending privileges to the island similar to those enjoyed by dozens of countries that have formal tax treaties with the U.S.

The legislation would also authorize the president to negotiate such an agreement with Taiwan that falls short of a formal treaty, as the U.S. doesn’t recognize Taiwan as a sovereign nation. 

Still, the roughly $80 billion package to which the Taiwan deal is attached faces significant hurdles to being enacted before tax season starts Jan. 29.

Beijing is sensitive to any moves by Washington it perceives as supporting an independent Taiwan, a self-ruled democracy that China expects to eventually unify with the mainland. The election victory over the weekend of a candidate seen as friendly to the US and opposed by China has heightened those tensions.  

Taiwan is a lynchpin in the global supply chain for advanced semiconductors, a key tech battleground between the U.S. and China. Washington is in the midst of a years-long push to increase domestic manufacturing of the critical components, and Taiwanese investment and expertise are essential to that effort. 

But the island’s firms see high U.S. taxes as an impediment to additional investment in America. Leading chipmaker Taiwan Semiconductor Manufacturing Co., which is building a $40 billion facility in Arizona, has raised the issue with Commerce Secretary Gina Raimondo. Taiwan’s top envoy to the U.S., Representative Hsiao Bi-khim, has said Taiwanese companies are holding back on U.S. investment due to the “unfair” tax regime. 

The new deal would reduce a 30% withholding rate to 10% on interest and royalties, and 15% on most dividends.

Taiwanese officials in March estimated an effective tax rate of 51% on Taiwanese firms’ profits in the U.S., due to withholding charges on dividends that are sent back home.