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Apple’s major chip manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC), is set to open its Arizona plant in 2024. However, US officials are urging the company to expand its operations in the States, complicating matters due to US-China politics.
TSMC has invested a whopping $40 billion in its new Arizona factory, which is expected to create thousands of jobs in the US. However, the company faces a major hurdle due to the lack of an income tax agreement between the US and Taiwan. This means that TSMC will face double taxation on its profits from any factory it builds in the US.
According to the Financial Times, TSMC could end up paying over 50% of its profits earned in the US unless the law is changed. In comparison, Samsung pays much less due to the tax treaty between the US and South Korea.
US politicians who are pushing for TSMC to expand in the States argue that President Biden should negotiate a tax accord with Taiwan. TSMC officials have also reportedly asked for such an agreement to ease the double taxation burden.
However, the US does not currently recognize Taiwan as a sovereign nation and instead sees it as part of China. This means that creating a separate tax deal for Taiwan would legally be acknowledging the country’s sovereign status, which could be seen as provocative by China and worsen US-China trade tensions.
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Aside from tax issues, there are also political problems over staffing TSMC’s Arizona plant and expanding the company’s operations in the US. 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”.
As TSMC nears the opening of its Arizona plant, US officials face a difficult task in navigating the complex web of US-China politics to encourage the company to build more factories in the States. While the potential economic benefits of TSMC’s expansion in the US are significant, the political ramifications could be even greater. Only time will tell how this saga unfolds.
