The U.S. Department of the Treasury has announced that the United States and Taiwan will commence negotiations on a comprehensive tax agreement to address double taxation issues. These discussions are set to begin under the auspices of the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO), with the first round expected in the coming weeks.
This initiative follows efforts by Congress, which has been instrumental in addressing this issue. The Biden-Harris Administration acknowledges the contributions of House and Senate committees, including proposals such as the United States-Taiwan Expedited Double-Tax Relief Act and United States-Taiwan Tax Agreement Authorization Act draft legislation. The Administration is committed to collaborating with relevant committees throughout these negotiations and working with Congress on legislation for final approval and implementation through the Internal Revenue Code.
A comprehensive tax agreement aims to benefit both nations significantly. It aligns with the CHIPS and Science Act's objectives of bolstering semiconductor supply chain resilience, job creation, and encouraging investments in U.S.-based semiconductor manufacturing facilities. This agreement intends to lower double taxation barriers for Taiwanese investment into the U.S., particularly benefiting small and medium-sized enterprises vital to a complete semiconductor ecosystem.
The proposed text is expected to draw from the U.S. Model Income Tax Convention, incorporating elements such as:
- Reduction of withholding taxes on cross-border payments of dividends, interest, and royalties;
- Provisions governing permanent establishments and tax treatment of temporary cross-border workers;
- Modern anti-abuse provisions aimed at preventing non-taxation instances and tax forum shopping;
- Dispute resolution mechanisms;
- Provisions for information exchange to assist revenue authorities in both jurisdictions with their tax administration duties.
