TSMC may not expand in US if double taxation rule continues
As Apple's major chip manufacturer TSMC nears the opening of its Arizona plant, US officials want it to build more -- but US versus China politics are complicating matters.
TSMC investing $40 billion in Arizona fabs
Taiwanese company TSMC has already invested $40 billion in its new Arizona factory, which it says will open in 2024. But since the US does not have a income tax agreement with Taiwan, TSMC faces double taxation on its profits from this or any other factory it could build in the States.
According to the Financial Times, unless there is a change in the law, TSMC will be paying out over 50% of its profits earned in the US. In comparison, Samsung pays much less because its home country of South Korea has a tax treaty with the States.
Naturally, then, US politicians who want to see the firm expand in the States argue that President Biden should negotiate a tax accord with Taiwan. TSMC officials have reportedly also asked for such an agreement to ease this double taxation burden.
However, at present the US does not recognize Taiwan as a separate country or sovereign nation. Instead, it sees it as part of China.
Consequently, creating a separate tax deal for Taiwan would legally be acknowledging the country's sovereign status. That could be seen by China as provocative, worsening the US/China trade tensions.
There are also political issues over staffing both TSMC's Arizona plant and more. TSMC has previously been reported to prefer bringing its existing staff to the US, as company management claims that "Americans are the most difficult to manage."
Read on AppleInsider
TSMC investing $40 billion in Arizona fabs
Taiwanese company TSMC has already invested $40 billion in its new Arizona factory, which it says will open in 2024. But since the US does not have a income tax agreement with Taiwan, TSMC faces double taxation on its profits from this or any other factory it could build in the States.
According to the Financial Times, unless there is a change in the law, TSMC will be paying out over 50% of its profits earned in the US. In comparison, Samsung pays much less because its home country of South Korea has a tax treaty with the States.
Naturally, then, US politicians who want to see the firm expand in the States argue that President Biden should negotiate a tax accord with Taiwan. TSMC officials have reportedly also asked for such an agreement to ease this double taxation burden.
However, at present the US does not recognize Taiwan as a separate country or sovereign nation. Instead, it sees it as part of China.
Consequently, creating a separate tax deal for Taiwan would legally be acknowledging the country's sovereign status. That could be seen by China as provocative, worsening the US/China trade tensions.
There are also political issues over staffing both TSMC's Arizona plant and more. TSMC has previously been reported to prefer bringing its existing staff to the US, as company management claims that "Americans are the most difficult to manage."
Read on AppleInsider
Comments
2. There's speculation that in a war with China, the US and/or its allies would destroy all of TSMC's facilities in Taiwan if China invaded and if it becomes likely that they would fall under CCP control. Both of these issues are national security concerns that have to be addressed. I think that it is reasonable to assume that the US would not be able to depend on Chinese made goods/manufacturing if there is a conflict over Taiwan.
TDLR: dear Apple, diversify your supply chain, or better yet, get out to China.
Apple also has to handle this transition diplomatically, as it also is caught between a rock and a hard place with regard to US-China relations. Not to mention the ability of the Chinese to amass gigantic, well-trained workforces that come (by western standards) extremely cheap.
Don’t forget, Apple is transnational corporation.
More to the point, the CCP/PRC never, ever, controlled Taiwan, and in fact, during the formation of the CCP, Japan held Taiwan, only giving it back to the Nationalists after WWII. The only reason we are talking of this is that the U.S., et al, decided that the PRC should get China's seat at the U.N., and that was primarily about the U.S. assuring that China would not ally at that time with Russia.
The only reason that the PRC has not successfully invaded Taiwan to date, is that their military was incapable of doing so. That is less true today, but may change in the next five to ten years when the PRC becomes a regional peer power to the U.S. and our allies.
Still, the PRC would have to be confident that they could weather a massive dislocation of world trade, which would certainly be part and parcel of the punitive actions and sanctions from the West. Meanwhile, the West is accelerating its buildup in the Pacific, so its a race to see if the PRC can act before the West is fully capable of protecting Taiwan.
Xi doesn't want to live by the rules of order that were the very reason that the PRC economy had such rapid growth, but that economy has matured, and China will never get rich before it gets old. Good luck on on keeping companies from moving elsewhere.
I think Taiwan has woken up to its military inadequacies, but time isn't on their side.