House makes another run at Taiwan tax treaty bill

House Republican leadership has teed up legislation conferring tax treaty-like treatment of Taiwan for fast-track consideration.

The package of rules for governing the House of Representatives in this Congress provides for immediate floor consideration for the bill. The legislation enjoys widespread bipartisan support. It passed the House last year and supporters were close to pushing it through the Senate before adjournment last year. If, or when, passed by the House, the bill could gain quick traction in the Senate, if leadership believes it can move with little objection (and use of precious floor time). But it may also catch a ride with comprehensive tax legislation expected later this year.

The legislation itself would create a new section of the Internal Revenue Code, Section 894A, that would provide treaty-like benefits to Taiwan, contingent on Treasury certifying that Taiwan has granted reciprocal benefits to U.S. persons. The treaty-like benefits that would be conferred to Taiwan under the legislation include:

• Reducing the 30% withholding rate on U.S. source interest and royalties to 10% for nonresident Taiwanese aliens and Taiwanese corporations
• Reducing the dividend withholding rate to 15%, with a 10% rate under certain conditions
• Applying permanent establishment rules to determine effectively connected income
• Exempting certain U.S. wages of Taiwanese residents from U.S. tax

On Oct. 29, Treasury announced it had begun talks for U.S. companies to receive reciprocal tax treatment from Taiwan, also along the lines of the U.S.’s current Model Income Tax Convention, another positive indicator for the U.S. bill.

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