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TSMC may not expand in US if double taxation rule continues

TSMC investing $40 billion in Arizona fabs

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.

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."