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December 1, 2023

Ways & Means approves Taiwan tax bill

The House Ways and Means Committee November 30 unanimously approved 40-0 the bipartisan United States-Taiwan Expedited Double-Tax Relief Act (H.R. 5988), under which income from US sources earned or received by qualified residents of Taiwan would be entitled to certain benefits. A separate Senate Foreign Relations Committee proposal, the United States-Taiwan Tax Agreement Authorization Act, to authorize the President to negotiate and enter into one or more non-self-executing tax agreements to provide for bilateral tax relief with Taiwan, was appended to the tax bill.

Subject to reciprocity requirements, the underlying Ways & Means/Finance bill would reduce the general statutory 30% withholding tax on US source income received by nonresident aliens and foreign corporations, interest and royalties to a 10% withholding tax rate. Generally, dividends would be subject to a 15% withholding tax rate, or a 10% rate if paid to a recipient that owns at least 10% of the shares of stock in the corporation, subject to limitations.

Both Chairman Jason Smith (R-MO) and Ranking Member Richard Neal (D-MA) highlighted reciprocity requirements under the bill. The bill's provisions are applicable only if reciprocal provisions apply to US persons with respect to income sourced in Taiwan. In a brief colloquy, Rep. Neal said, in making the determination that Taiwan has reciprocal tax benefits, his understanding is Treasury is expected to ensure that Taiwan does not impose tax on business income, such as a withholding tax on services income, on US taxpayers except for business income that is effectively connected to permanent establishment of the US person in Taiwan. He asked for the Committee report to clarify this point. Chairman Smith said he agreed with Rep. Neal's assertion and would work to address the point in the report.

Chairman Smith's amendment to add the Title II Foreign Relations proposal requires, regarding bilateral negotiations:

  • the President to provide written notification to certain appropriate congressional committees of the commencement of negotiations with Taiwan at least 15 calendar days prior to commencing negotiations
  • no later than 90 days after commencing negotiations and every 180 days thereafter until the President enters into the Agreement, the President is required to provide a briefing to the appropriate congressional committees on the status of the negotiations, including a description of elements under negotiation

Both Chairman Smith and Ranking Member Neal have made comments suggesting the bill is ready for the House floor and could receive a vote soon. The Taiwan issue, rooted at least in part in the interest of boosting semiconductor chip production, is bipartisan, and the Committee leaders began the markup with some bipartisan praise of a retiring member, Rep. Dan Kildee (D-MI).

The Taiwan bill is also a candidate to be attached to a broader tax measure. A November 29 Tax Notes story cited Senate Foreign Relations Committee Chairman Ben Cardin (D-MD), who is also on the Finance Committee, as saying Senators are hoping to attach their Taiwan proposals to any suitable vehicle. "We don't think Taiwan is particularly controversial," he said. "So we're looking for the first engine that gets through that we're willing to get connected to. I don't think we're that concerned as to what vehicle that is; we'd just like to get it done."

Bills on tax-exempt and charitable issues were also marked up by Ways & Means.

Materials related to the markup are available here.


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For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
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