On October 29, 2024, the U.S. Department of the Treasury announced that the United States and Taiwan will begin negotiations on a comprehensive agreement to address double taxation issues.1 It is expected that the first round of negotiations will take place in the coming weeks.
WHY THIS MATTERS
As previously reported,2 while an agreement resulting from the negotiations would not constitute a full-fledged double-taxation convention between the United States and Taiwan, a comprehensive double-taxation agreement would help to reduce the barriers posed by double taxation, making it easier for businesses, investors, and employees to operate across borders. This is especially pertinent for industries – in particular, semiconductor manufacturing – that are crucial to both countries’ economies.
Background
The negotiations build on pending U.S. legislation that aims to facilitate cross-border commerce and mitigate the double taxation burdens faced by businesses and employees.3
The agreement is expected to be based on the U.S. Model Income Tax Convention and include items such as:
- Reduction of withholding taxes on cross-border payments of dividends, interest, and royalties;
- Provisions governing permanent establishments and tax treatment of temporary cross-border workers;
- Modern anti-abuse provisions intended to prevent instances of non-taxation of income as well as tax-forum shopping;
- Dispute resolution mechanisms; and
- Provisions for the exchange of information to help revenue authorities in both jurisdictions carry out their duties as tax administrators.
KPMG Insights
KPMG is closely monitoring these developments and will provide updates as the negotiations progress.
The negotiations are a significant step towards a double-taxation agreement that would reduce the complexities around each countries’ taxing rights and the prevention of double taxation. The risk of double taxation can be a major hurdle for international assignees and their employers.
Businesses should prepare for potential changes and consider how a double-taxation agreement between the United States and Taiwan might impact their international assignments and related costs.
Related Resource
For a related report, see "Treasury announces the beginning of negotiation of a tax agreement with Taiwan" in TaxNewsFlash - United States (October 29, 2024), a publication of KPMG LLP in the United States.
Additional Resources
Footnotes
1 U.S. Department of the Treasury, “United States and Taiwan to Begin Negotiating a Comprehensive Tax Agreement” (October 29, 2024) at: https://home.treasury.gov/news/press-releases/jy2693.
2 For prior coverage, see GMS Flash Alert 2024-032 (February 1, 2024), GMS Flash Alert 2024-019 (January 19, 2024), GMS Flash Alert 2023-230 (December 1, 2023), GMS Flash Alert 2023-183 (September 21, 2023).
3 The pending legislation includes the United States-Taiwan Expedited Double-Tax Relief Act, and the United States-Taiwan Tax Agreement Authorization Act.
U.S. Congress. (2023). H.R. 5988 – United States-Taiwan Expedited Double-Tax Relief Act. 118th Congress. See: https://www.congress.gov/bill/118th-congress/house-bill/5988 .
U.S. Congress. (2023). S. 1457 – United States-Taiwan Tax Agreement Authorization Act. 118th Congress. See: https://www.congress.gov/bill/118th-congress/senate-bill/1457 .
Disclaimer
The above information is not intended to be "written advice concerning one or more Federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.
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