The American dream is becoming a nightmare for Taiwanese company TSMC, Apple's primary chip manufacturer, as double taxation rules obstruct its growth plans in the United States.
TSMC has already committed $40 billion to its Arizona factory, set to open in 2024. However, due to the lack of an income tax treaty between the US and Taiwan, TSMC is subject to double taxation on profits from its American facilities. According to the Financial Times, if the law remains unchanged, TSMC will pay over 50% of its US profits in taxes, while Samsung, its competitor, pays significantly less due to a tax agreement between the US and South Korea.
US lawmakers advocating for TSMC's expansion argue that President Biden should establish a revenue agreement with Taiwan. TSMC officials have reportedly requested such a treaty to alleviate double taxation. However, the US currently does not recognize Taiwan as a separate entity or sovereign nation, considering it part of China. Creating a separate tax treaty would acknowledge Taiwan's sovereignty, potentially escalating US-China trade tensions.
TSMC also faces challenges regarding staffing its Arizona factory, as it prefers to relocate existing employees to the US, citing difficulties managing American workers.
In related news, TSMC Chairman Mark Liu called on the Taiwanese government to provide more essential equipment for advanced chipmaking to strengthen its role in the $550 billion industry. At a conference organized by the Taiwan Semiconductor Industry Association, Liu emphasized the need for a more comprehensive domestic semiconductor supply ecosystem.
Liu urged the government to assist Taiwanese semiconductor firms in developing crucial technologies and enhancing their capabilities in producing high-end semiconductor equipment and materials to counter increasing competition from China.
Liu also expressed concern over some clauses in the application guidelines for chip investment subsidies under the US' CHIPS and Science Act, deeming them unacceptable. South Korean memory chip maker SK Hynix Inc. also stated that the application process is too demanding, with the South Korean government expressing concerns about the requirement to disclose detailed technical and financial information typically considered trade secrets.
The US government demands that companies applying for subsidies under the CHIPS and Science Act submit files containing information on profit calculations, according to BusinessKorea magazine. Liu said, "We are still in discussions [with the US Department of Commerce]. Some conditions are unacceptable. We hope [the department] will make some adjustments."
Liu reassured that TSMC's operations in Taiwan would not be negatively impacted by the US investment rules. TSMC, the world's largest contract chipmaker, has pledged to double its US investment to $40 billion as it plans to construct two advanced chip factories in Arizona. The first factory is set to begin producing chips on 4-nanometer nodes next year, with the second starting 3-nanometer chip production in 2026.
