In a unanimous decision on Thursday, the Senate Finance Committee approved a bill aimed at strengthening economic ties between the United States and Taiwan. The legislation, if passed into law, would eliminate double taxation, an issue that has long hampered business relationships between the two nations.
The proposed bill seeks to solve the problem of Taiwanese and American companies being taxed twice when operating in each other's countries. Despite having tax treaties with several nations to prevent such situations, the U.S. has been unable to establish a similar agreement with Taiwan due to the lack of official diplomatic ties.
This legislative effort sidesteps the traditional tax treaty process, which usually involves U.S. administrations negotiating agreements ratified by the Senate. Instead, Congress is mulling over a direct change to the tax code, contingent on Taiwan offering analogous benefits for American businesses operating there.
Originating from House lawmakers, the legislation could become law later this year with full Senate and House approval and President Biden's signature. The Biden administration has already expressed support for ending double taxation with Taiwan.
Lawmakers view the bill as an opportunity to stimulate investment in the U.S. semiconductor industry and bolster American manufacturing. In 2022, Congress sanctioned over $50 billion in aid for this sector through the CHIPS Act legislation. Taiwan, a global leader in microchip production, has plans to establish manufacturing facilities in the U.S., including Taiwan Semiconductor Manufacturing Company's planned chip facility in Arizona.
The bill also serves as a reaffirmation of U.S. support for Taiwan amid escalating aggression from Beijing. The legislation has garnered support from Republicans on the Senate Finance Committee, including Senator Chuck Grassley who sees it as sending a strong message to China.
However, China has criticized the legislation as a violation of the "One China principle." The Chinese embassy in Washington opposes any country negotiating economic or trade agreements with Taiwan that have sovereign implications or an official nature.
Earlier this summer, the Senate Foreign Relations Committee passed a separate bill addressing double taxation with Taiwan. A compromise between the committees may be required to advance the legislation. Despite this possible obstacle, lawmakers remain hopeful about the bill's passage in the coming months.
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