Early last month, when six prominent U.S. senators — three Democrats and three Republicans — introduced a resolution urging the Biden administration to start negotiating a double taxation agreement with Taiwan, the resolution The text specifically calls attention to the support of the American Chamber of Commerce in Taiwan for such agreements expressed in 2022 White Paper.
In fact, the U.S. Chamber of Commerce has long advocated a U.S.-Taiwan bilateral tax treaty, an idea that American Institute in Taiwan director Stephen Young first floated about 15 years ago at the chamber’s New Year’s Eve banquet. Young sees the initiative as a natural part of the efforts needed to further strengthen the bilateral economic relationship.
But the proposal didn’t get much attention at the time. A major obstacle cited was the lack of formal diplomatic relations between Taiwan and the United States, meaning the agreement could not be considered a treaty, as it would normally be. Washington appears to have little interest in the challenge of charting a new course to get around constitutional hurdles. As a result, the issue has long been sidelined by the U.S. Chamber of Commerce.
Thankfully, the overall environment surrounding potential double tax treaties has changed significantly over the past few years. One difference is the growing interest of Taiwanese companies in investing in the United States, while the U.S. government, through the Commerce Department’s SelectUSA program, is increasingly encouraging such foreign investment as a means of boosting domestic manufacturing and job creation. While the program has had some important successes in attracting investment from Taiwan, for many potential investors the primary consideration remains tax implications. A double tax treaty would remove most of these concerns.
Meanwhile, U.S. companies operating in Taiwan — especially those in key technology industries — are subject to double taxation on some income, including income from dividends and royalties.Additionally, over the past two years, the AmCham’s Semiconductor and Tax Section white paper It has been noted that the potential impact of double taxation leads US companies to avoid using OEM Taiwanese manufacturers to ship directly to US end customers, thereby inconveniently lengthening the supply chain.
Admittedly, geopolitical factors have also prompted U.S. authorities — especially Taiwan’s supporters in Congress — to seek new ways to bring the two economies closer while avoiding sensitive areas that could anger China. The tax treaty seems suitably uncontroversial, and solid arguments can be marshalled in its favour. As the proposed Senate resolution explains, the United States already maintains tax treaties with 66 other countries, and Taiwan has similar treaties with 34 countries. However, Taiwan consistently ranks among the top 10 US trading partners and is the only country in this category that does not have a double tax treaty.Tax avoidance mechanism with the United States
Responding to a question at a House Appropriations subcommittee hearing, Treasury Secretary Janet Yellen now said she acknowledged the lack of a tax deal with Taiwan was a “very important issue” that the Biden administration would seek to address. Fifteen years after first proposing the idea, the AmCham is urging the US government to move quickly to make it happen.