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September 14, 2023

Finance Committee approves Taiwan tax bill

The Senate Finance Committee September 14 approved by a unanimous 27-0 vote the US-Taiwan Expedited Double Taxation Relief Act to reduce tax on income from US sources earned or received by residents of Taiwan from the current 30% tax. The provisions are contingent on Taiwan enacting corresponding tax reductions for US residents.

The vote followed statements of support from members of both parties and the Committee's July 12 release of a discussion draft with Ways & Means leaders. In an opening statement, Chairman Ron Wyden (D-OR) said it is not every day members come together in this bipartisan fashion and noted Taiwan plays a large role in the production of consumer electronics and military equipment for national security purposes. Ranking Member Mike Crapo (R-ID) similarly acknowledged the role Taiwan plays in manufacturing chips for consumer goods and defense technology, said the Committee has a strong interest in ensuring Taiwan is secure, and noted that the provisions are based on reciprocity.

The Senate Foreign Relations Committee July 13 approved the separate Taiwan Tax Agreement Act (S. 1457) to authorize the President to negotiate and enter into a tax agreement with Taiwan to relieve US and Taiwanese tax residents from double taxation. Senator Crapo said he is confident in finding an appropriate path forward for each committee, a point that was echoed by Chairman Wyden.

Senator Ben Cardin (D-MD), who also serves on Foreign Relations, said he hoped members could reach a holistic approach given the importance of Taiwan to US business. Foreign Relations Chairman Bob Menendez (D-NJ) said he would vote to advance the bill despite deep concerns that the bill alone is insufficient. He said the US should insist upon a binding tax agreement but did not push for a vote on his amendment to sunset the bill after two years unless Congress has approved a US-Taiwan tax agreement.

Senator Sheldon Whitehouse (D-RI) sought assurance that Treasury would brief Congress on efforts to establish a program for the exchange of tax information between the US and Taiwan. Michael Plowgian, Deputy Assistant Treasury Secretary for International Tax Affairs, said from the witness table that a tax information exchange agreement with Taiwan is being negotiated but he could not say when it would be finalized. He agreed to brief the Committee.

Senator Catherine Cortez Masto (D-NV) highlighted the fact that her amendment on avoiding double taxation on entertainment income was folded into the Chairman's modification and made part of the bill. Members including Marsha Blackburn (R-TN) also voiced support for the change.

Senator Todd Young (R-IN) highlighted the change beginning in 2022 to five-year amortization for R&D expenses rather than expensing under IRC Section 174, said some employers can't make payroll and may close their doors as a result, and encouraged Congress to take action this year to reinstate R&D expensing. Senator Wyden said the R&D issue is important but "we have also got to stand up for our kids," alluding to the fact that Democrats insist upon a Child Tax Credit (CTC) expansion in conjunction with business tax provisions.

Under the bill, tax on US-source interest, royalties, and gains paid to or received by a qualified resident of Taiwan would be reduced to 10%. Tax on US-source dividends paid to or received by a qualified resident of Taiwan would be reduced to 15%, or a 10% rate for certain owners of at least 10% of the shares of stock in a corporation, subject to limitations.

The Finance Committee traditionally marks up legislation on a conceptual basis and produces legislative language later.

Materials related to the markup are available here.


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