United States-Taiwan Expedited Double-Tax Relief Act
This bill establishes special rules for the taxation of residents of Taiwan with income from sources within the United States. This includes the reduction of the rate of withholding of taxes, the application of permanent establishment rules, treatment of income from employment, and the determination of the residency of citizens of Taiwan.
[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5988 Introduced in House (IH)]
<DOC>
118th CONGRESS
1st Session
H. R. 5988
To amend the Internal Revenue Code of 1986 to provide special rules for
the taxation of certain residents of Taiwan with income from sources
within the United States.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
October 19, 2023
Mr. Smith of Missouri (for himself, Mr. Neal, Mr. Smith of Nebraska,
Mr. Kelly of Pennsylvania, Mr. Schweikert, Mr. LaHood, Mr. Smucker, Mr.
Murphy, Mr. Kustoff, Ms. Tenney, Mr. Moore of Utah, Mrs. Steel, Mr.
Carey, Ms. Sanchez, Ms. DelBene, Ms. Chu, and Mr. Wenstrup) introduced
the following bill
October 25, 2023
Referred to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide special rules for
the taxation of certain residents of Taiwan with income from sources
within the United States.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``United States-Taiwan Expedited
Double-Tax Relief Act''.
SEC. 2. SPECIAL RULES FOR TAXATION OF CERTAIN RESIDENTS OF TAIWAN.
(a) In General.--Subpart D of part II of subchapter N of chapter 1
of the Internal Revenue Code of 1986 is amended by inserting after
section 894 the following new section:
``SEC. 894A. SPECIAL RULES FOR QUALIFIED RESIDENTS OF TAIWAN.
``(a) Certain Income From United States Sources.--
``(1) Interest, dividends, and royalties, etc.--
``(A) In general.--In the case of interest (other
than original issue discount), dividends, royalties,
amounts described in section 871(a)(1)(C), and gains
described in section 871(a)(1)(D) received by or paid
to a qualified resident of Taiwan--
``(i) sections 871(a), 881(a), 1441(a),
1441(c)(5), and 1442(a) shall each be applied
by substituting `the applicable percentage (as
defined in section 894A(a)(1)(C))' for `30
percent' each place it appears, and
``(ii) sections 871(a), 881(a), and
1441(c)(1) shall each be applied by
substituting `a United States permanent
establishment of a qualified resident of
Taiwan' for `a trade or business within the
United States' each place it appears.
``(B) Exceptions.--
``(i) In general.--Subparagraph (A) shall
not apply to--
``(I) any dividend received from or
paid by a real estate investment trust
which is not a qualified REIT dividend,
``(II) any amount subject to
section 897,
``(III) any amount received from or
paid by an expatriated entity (as
defined in section 7874(a)(2)) to a
foreign related person (as defined in
section 7874(d)(3)), and
``(IV) any amount which is included
in income under section 860C to the
extent that such amount does not exceed
an excess inclusion with respect to a
REMIC.
``(ii) Qualified reit dividend.--For
purposes of clause (i)(I), the term `qualified
REIT dividend' means any dividend received from
or paid by a real estate investment trust if
such dividend is paid with respect to a class
of shares that is publicly traded and the
recipient of the dividend is a person who holds
an interest in any class of shares of the real
estate investment trust of not more than 5
percent.
``(C) Applicable percentage.--For purposes of
applying subparagraph (A)(i)--
``(i) In general.--Except as provided in
clause (ii), the term `applicable percentage'
means 10 percent.
``(ii) Special rules for dividends.-- In
the case of any dividend in respect of stock
received by or paid to a qualified resident of
Taiwan, the applicable percentage shall be 15
percent (10 percent in the case of a dividend
which meets the requirements of subparagraph
(D) and is received by or paid to an entity
taxed as a corporation in Taiwan).
``(D) Requirements for lower dividend rate.--
``(i) In general.--The requirements of this
subparagraph are met with respect to any
dividend in respect of stock in a corporation
if, at all times during the 12-month period
ending on the date such stock becomes ex-
dividend with respect to such dividend--
``(I) the dividend is derived by a
qualified resident of Taiwan, and
``(II) such qualified resident of
Taiwan has held directly at least 10
percent (by vote and value) of the
total outstanding shares of stock in
such corporation.
For purposes of subclause (II), a person shall
be treated as directly holding a share of stock
during any period described in the preceding
sentence if the share was held by a corporation
from which such person later acquired that
share and such corporation was, at the time the
share was acquired, both a connected person to
such person and a qualified resident of Taiwan.
``(ii) Exception for rics and reits.--
Notwithstanding clause (i), the requirements of
this subparagraph shall not be treated as met
with respect to any dividend paid by a
regulated investment company or a real estate
investment trust.
``(2) Qualified wages.--
``(A) In general.--No tax shall be imposed under
this chapter (and no amount shall be withheld under
section 1441(a) or chapter 24) with respect to
qualified wages paid to a qualified resident of Taiwan
who--
``(i) is not a resident of the United
States (determined without regard to subsection
(c)(3)(E)), or
``(ii) is employed as a member of the
regular component of a ship or aircraft
operated in international traffic.
``(B) Qualified wages.--
``(i) In general.--The term `qualified
wages' means wages, salaries, or similar
remunerations with respect to employment
involving the performance of personal services
within the United States which--
``(I) are paid by (or on behalf of)
any employer other than a United States
person, and
``(II) are not borne by a United
States permanent establishment of any
person other than a United States
person.
``(ii) Exceptions.--Such term shall not
include directors' fees, income derived as an
entertainer or athlete, income derived as a
student or trainee, pensions, amounts paid with
respect to employment with the United States,
any State (or political subdivision thereof),
or any possession of the United States (or any
political subdivision thereof), or other
amounts specified in regulations or guidance
under subsection (f)(1)(F).
``(3) Income derived from entertainment or athletic
activities.--
``(A) In general.--No tax shall be imposed under
this chapter (and no amount shall be withheld under
section 1441(a) or chapter 24) with respect to income
derived by an entertainer or athlete who is a qualified
resident of Taiwan from personal activities as such
performed in the United States if the aggregate amount
of gross receipts from such activities for the taxable
year do not exceed $30,000.
``(B) Exception.--Subparagraph (A) shall not apply
with respect to--
``(i) income which is qualified wages (as
defined in paragraph (2)(B), determined without
regard to clause (ii) thereof), or
``(ii) income which is effectively
connected with a United States permanent
establishment.
``(b) Income Connected With a United States Permanent Establishment
of a Qualified Resident of Taiwan.--
``(1) In general.--
``(A) In general.--In lieu of applying sections
871(b) and 882, a qualified resident of Taiwan that
carries on a trade or business within the United States
through a United States permanent establishment shall
be taxable as provided in section 1, 11, 55, or 59A, on
its taxable income which is effectively connected with
such permanent establishment.
``(B) Determination of taxable income.--In
determining taxable income for purposes of paragraph
(1), gross income includes only gross income which is
effectively connected with the permanent establishment.
``(2) Treatment of dispositions of united states real
property.--In the case of a qualified resident of Taiwan,
section 897(a) shall be applied--
``(A) by substituting `carried on a trade or
business within the United States through a United
States permanent establishment' for `were engaged in a
trade or business within the United States', and
``(B) by substituting `such United States permanent
establishment' for `such trade or business'.
``(3) Treatment of branch profits taxes.--In the case of
any corporation which is a qualified resident of Taiwan,
section 884 shall be applied--
``(A) by substituting `10 percent' for `30 percent
' in subsection (a) thereof, and
``(B) by substituting `a United States permanent
establishment of a qualified resident of Taiwan' for
`the conduct of a trade or business within the United
States' in subsection (d)(1) thereof.
``(4) Special rule with respect to income derived from
certain entertainment or athletic activities.--
``(A) In general.--Paragraph (1) shall not apply to
the extent that the income is derived--
``(i) in respect of entertainment or
athletic activities performed in the United
States, and
``(ii) by a qualified resident of Taiwan
who is not the entertainer or athlete
performing such activities.
``(B) Exception.--Subparagraph (A) shall not apply
if the person described in subparagraph (A)(ii) is
contractually authorized to designate the individual
who is to perform such activities.
``(5) Special rule with respect to certain amounts.--
Paragraph (1) shall not apply to any income which is wages,
salaries, or similar remuneration with respect to employment or
with respect to any amount which is described in subsection
(a)(2)(B)(ii).
``(c) Qualified Resident of Taiwan.--For purposes of this section--
``(1) In general.--The term `qualified resident of Taiwan'
means any person who--
``(A) is liable to tax under the laws of Taiwan by
reason of such person's domicile, residence, place of
management, place of incorporation, or any similar
criterion,
``(B) is not a United States person (determined
without regard to paragraph (3)(E)), and
``(C) in the case of an entity taxed as a
corporation in Taiwan, meets the requirements of
paragraph (2).
``(2) Limitation on benefits for corporate entities of
taiwan.--
``(A) In general.--Subject to subparagraphs (E) and
(F), an entity meets the requirements of this paragraph
only if it--
``(i) meets the ownership and income
requirements of subparagraph (B),
``(ii) meets the publicly traded
requirements of subparagraph (C), or
``(iii) meets the qualified subsidiary
requirements of subparagraph (D).
``(B) Ownership and income requirements.--The
requirements of this subparagraph are met for an entity
if--
``(i) at least 50 percent (by vote and
value) of the total outstanding shares of stock
in such entity are owned directly or indirectly
by qualified residents of Taiwan, and
``(ii) less than 50 percent of such
entity's gross income (and in the case of an
entity that is a member of a tested group, less
than 50 percent of the tested group's gross
income) is paid or accrued, directly or
indirectly, in the form of payments that are
deductible for purposes of the income taxes
imposed by Taiwan, to persons who are not--
``(I) qualified residents of
Taiwan, or
``(II) United States persons who
meet such requirements with respect to
the United States as determined by the
Secretary to be equivalent to the
requirements of this subsection
(determined without regard to paragraph
(1)(B)) with respect to residents of
Taiwan.
``(C) Publicly traded requirements.--An entity
meets the requirements of this subparagraph if--
``(i) the principal class of its shares
(and any disproportionate class of shares) of
such entity are primarily and regularly traded
on an established securities market in Taiwan,
or
``(ii) the primary place of management and
control of the entity is in Taiwan and all
classes of its outstanding shares described in
clause (i) are regularly traded on an
established securities market in Taiwan.
``(D) Qualified subsidiary requirements.--An entity
meets the requirement of this subparagraph if--
``(i) at least 50 percent (by vote and
value) of the total outstanding shares of the
stock of such entity are owned directly or
indirectly by 5 or fewer entities--
``(I) which meet the requirements
of subparagraph (C), or
``(II) which are United States
persons the principal class of the
shares (and any disproportionate class
of shares) of which are primarily and
regularly traded on an established
securities market in the United States,
and
``(ii) the entity meets the requirements of
clause (ii) of subparagraph (B).
``(E) Only indirect ownership through qualifying
intermediaries counted.--
``(i) In general.--Stock in an entity owned
by a person indirectly through 1 or more other
persons shall not be treated as owned by such
person in determining whether the person meets
the requirements of subparagraph (B)(i) or
(D)(i) unless all such other persons are
qualifying intermediate owners.
``(ii) Qualifying intermediate owners.--The
term `qualifying intermediate owner' means a
person that is--
``(I) a qualified resident of
Taiwan, or
``(II) a resident of any other
foreign country (other than a foreign
country that is a foreign country of
concern) that has in effect a
comprehensive convention with the
United States for the avoidance of
double taxation.
``(iii) Special rule for qualified
subsidiaries.--For purposes of applying
subparagraph (D)(i), the term `qualifying
intermediate owner' shall include any person
who is a United States person who meets such
requirements with respect to the United States
as determined by the Secretary to be equivalent
to the requirements of this subsection
(determined without regard to paragraph (1)(B))
with respect to residents of Taiwan.
``(F) Certain payments not included.--In
determining whether the requirements of subparagraph
(B)(ii) or (D)(ii) are met with respect to an entity,
the following payments shall not be taken into account:
``(i) Arm's-length payments by the entity
in the ordinary course of business for services
or tangible property.
``(ii) In the case of a tested group,
intra-group transactions.
``(3) Dual residents.--
``(A) Rules for determination of status.--
``(i) In general.--An individual who is an
applicable dual resident and who is described
in subparagraph (B), (C), or (D) shall be
treated as a qualified resident of Taiwan.
``(ii) Applicable dual resident.--For
purposes of this paragraph, the term
`applicable dual resident' means an individual
who--
``(I) is not a United States
citizen,
``(II) is a resident of the United
States (determined without regard to
subparagraph (E)), and
``(III) would be a qualified
resident of Taiwan but for paragraph
(1)(B).
``(B) Permanent home.--An individual is described
in this subparagraph if such individual--
``(i) has a permanent home available to
such individual in Taiwan, and
``(ii) does not have a permanent home
available to such individual in the United
States.
``(C) Center of vital interests.--An individual is
described in this subparagraph if--
``(i) such individual has a permanent home
available to such individual in both Taiwan and
the United States, and
``(ii) such individual's personal and
economic relations (center of vital interests)
are closer to Taiwan than to the United States.
``(D) Habitual abode.--An individual is described
in this subparagraph if--
``(i) such individual--
``(I) does not have a permanent
home available to such individual in
either Taiwan or the United States, or
``(II) has a permanent home
available to such individual in both
Taiwan and the United States but such
individual's center of vital interests
under subparagraph (C)(ii) cannot be
determined, and
``(ii) such individual has a habitual abode
in Taiwan and not the United States.
``(E) United states tax treatment of qualified
resident of taiwan.--Notwithstanding section 7701, an
individual who is treated as a qualified resident of
Taiwan by reason of this paragraph for all or any
portion of a taxable year shall not be treated as a
resident of the United States for purposes of computing
such individual's United States income tax liability
for such taxable year or portion thereof.
``(4) Rules of special application.--
``(A) Dividends.--For purposes of applying this
section to any dividend, paragraph (2)(D) shall be
applied without regard to clause (ii) thereof.
``(B) Items of income emanating from an active
trade or business in taiwan.--For purposes of this
section--
``(i) In general.--Notwithstanding the
preceding paragraphs of this subsection, if an
entity taxed as a corporation in Taiwan is not
a qualified resident of Taiwan but meets the
requirements of subparagraphs (A) and (B) of
paragraph (1), any qualified item of income
such entity derived from the United States
shall be treated as income of a qualified
resident of Taiwan.
``(ii) Qualified items of income.--
``(I) In general.--The term
`qualified item of income' means any
item of income which emanates from, or
is incidental to, the conduct of an
active trade or business in Taiwan
(other than operating as a holding
company, providing overall supervision
or administration of a group of
companies, providing group financing,
or making or managing investments
(unless such making or managing
investments is carried on by a bank,
insurance company, or registered
securities dealer in the ordinary
course of its business as such)).
``(II) Substantial activity
requirement.--An item of income which
is derived from a trade or business
conducted in the United States or from
a connected person shall be a qualified
item of income only if the trade or
business activity conducted in Taiwan
to which the item is related is
substantial in relation to the same or
a complementary trade or business
activity carried on in the United
States. For purposes of applying this
subclause, activities conducted by
persons that are connected to the
entity described in clause (i) shall be
deemed to be conducted by such entity.
``(iii) Exception.--This subparagraph shall
not apply to any item of income derived by an
entity if at least 50 percent (by vote or
value) of such entity is owned (directly or
indirectly) or controlled by residents of a
foreign country of concern.
``(d) Other Definitions and Special Rules.--For purposes of this
section--
``(1) United states permanent establishment.--
``(A) In general.--The term `United States
permanent establishment' means, with respect to a
qualified resident of Taiwan, a permanent establishment
of such resident which is within the United States.
``(B) Special rule.--The determination of whether
there is a permanent establishment of a qualified
resident of Taiwan within the United States shall be
made without regard to whether an entity which is taxed
as a corporation in Taiwan and which is a qualified
resident of Taiwan controls or is controlled by--
``(i) a domestic corporation, or
``(ii) any other person that carries on
business in the United States (whether through
a permanent establishment or otherwise).
``(2) Permanent establishment.--
``(A) In general.--The term `permanent
establishment' means a fixed place of business through
which a trade or business is wholly or partly carried
on. Such term shall include--
``(i) a place of management,
``(ii) a branch,
``(iii) an office,
``(iv) a factory,
``(v) a workshop, and
``(vi) a mine, an oil or gas well, a
quarry, or any other place of extraction of
natural resources.
``(B) Special rules for certain temporary
projects.--
``(i) In general.--A building site or
construction or installation project, or an
installation or drilling rig or ship used for
the exploration or exploitation of the sea bed
and its subsoil and their natural resources,
constitutes a permanent establishment only if
it lasts, or the activities of the rig or ship
lasts, for more than 12 months.
``(ii) Determination of 12-month period.--
For purposes of clause (i), the period over
which a building site or construction or
installation project of a person lasts shall
include any period of more than 30 days during
which such person does not carry on activities
at such building site or construction or
installation project but connected activities
are carried on at such building site or
construction or installation project by one or
more connected persons.
``(C) Habitual exercise of contract authority
treated as permanent establishment.--Notwithstanding
subparagraphs (A) and (B), where a person (other than
an agent of an independent status to whom subparagraph
(D)(ii) applies) is acting on behalf of a trade or
business of a qualified resident of Taiwan and has and
habitually exercises an authority to conclude contracts
that are binding on the trade or business, that trade
or business shall be deemed to have a permanent
establishment in the country in which such authority is
exercised in respect of any activities that the person
undertakes for the trade or business, unless the
activities of such person are limited to those
described in subparagraph (D)(i) that, if exercised
through a fixed place of business, would not make this
fixed place of business a permanent establishment under
the provisions of that subparagraph.
``(D) Exclusions.--
``(i) In general.--Notwithstanding
subparagraphs (A) and (B), the term `permanent
establishment' shall not include--
``(I) the use of facilities solely
for the purpose of storage, display, or
delivery of goods or merchandise
belonging to the trade or business,
``(II) the maintenance of a stock
of goods or merchandise belonging to
the trade or business solely for the
purpose of storage, display, or
delivery,
``(III) the maintenance of a stock
of goods or merchandise belonging to
the trade or business solely for the
purpose of processing by another trade
or business,
``(IV) the maintenance of a fixed
place of business solely for the
purpose of purchasing goods or
merchandise, or of collecting
information, for the trade or business,
``(V) the maintenance of a fixed
place of business solely for the
purpose of carrying on, for the trade
or business, any other activity of a
preparatory or auxiliary character, or
``(VI) the maintenance of a fixed
place of business solely for any
combination of the activities mentioned
in subclauses (I) through (V), provided
that the overall activity of the fixed
place of business resulting from this
combination is of a preparatory or
auxiliary character.
``(ii) Brokers and other independent
agents.--A trade or business shall not be
considered to have a permanent establishment in
a country merely because it carries on business
in such country through a broker, general
commission agent, or any other agent of an
independent status, provided that such persons
are acting in the ordinary course of their
business as independent agents.
``(3) Tested group.--The term `tested group' includes, with
respect to any entity taxed as a corporation in Taiwan, such
entity and any other entity taxed as a corporation in Taiwan
that--
``(A) participates as a member with such entity in
a tax consolidation, fiscal unity, or similar regime
that requires members of the group to share profits or
losses, or
``(B) shares losses with such entity pursuant to a
group relief or other loss sharing regime.
``(4) Connected person.--Two persons shall be `connected
persons' if one owns, directly or indirectly, at least 50
percent of the interests in the other (or, in the case of a
corporation, at least 50 percent of the aggregate vote and
value of the corporation's shares) or another person owns,
directly or indirectly, at least 50 percent of the interests
(or, in the case of a corporation, at least 50 percent of the
aggregate vote and value of the corporation's shares) in each
person. In any case, a person shall be connected to another if,
based on all the relevant facts and circumstances, one has
control of the other or both are under the control of the same
person or persons.
``(5) Foreign country of concern.--The term `foreign
country of concern' has the meaning given such term under
paragraph (7) of section 9901 of the William M. (Mac)
Thornberry National Defense Authorization Act for Fiscal Year
2021 (15 U.S.C. 4651(7)), as added by section 103(a)(4) of the
CHIPS Act of 2022).
``(6) Partnerships; beneficiaries of estates and trusts.--
For purposes of this section--
``(A) a qualified resident of Taiwan which is a
partner of a partnership which carries on a trade or
business within the United States through a United
States permanent establishment shall be treated as
carrying on such trade or business through such
permanent establishment, and
``(B) a qualified resident of Taiwan which is a
beneficiary of an estate or trust which carries on a
trade or business within the United States through a
United States permanent establishment shall be treated
as carrying on such trade or business through such
permanent establishment.
``(7) Denial of benefits for certain payments through
hybrid entities.--For purposes of this section, rules similar
to the rules of section 894(c) shall apply.
``(e) Application.--
``(1) In general.--This section shall not apply to any
period unless the Secretary has determined that Taiwan has
provided benefits to United States persons for such period that
are reciprocal to the benefits provided to qualified residents
of Taiwan under this section.
``(2) Provision of reciprocity.--The President or his
designee is authorized to exchange letters, enter into an
agreement, or take other necessary and appropriate steps
relative to Taiwan for the reciprocal provision of the benefits
described in this section.
``(f) Regulations or Other Guidance.--
``(1) In general.--The Secretary shall issue such
regulations or other guidance as may be necessary or
appropriate to carry out the provisions of this section,
including such regulations or guidance for--
``(A) determining--
``(i) what constitutes a United States
permanent establishment of a qualified resident
of Taiwan, and
``(ii) income that is effectively connected
with such a permanent establishment,
``(B) preventing the abuse of the provisions of
this section by persons who are not (or who should not
be treated as) qualified residents of Taiwan,
``(C) requirements for record keeping and
reporting,
``(D) rules to assist withholding agents or
employers in determining whether a foreign person is a
qualified resident of Taiwan for purposes of
determining whether withholding or reporting is
required for a payment (and, if withholding is
required, whether it should be applied at a reduced
rate),
``(E) the application of subsection (a)(1)(D)(i) to
stock held by predecessor owners,
``(F) determining what amounts are to be treated as
qualified wages for purposes of subsection (a)(2),
``(G) determining the amounts to which subsection
(a)(3) applies,
``(H) defining established securities market for
purposes of subsection (c),
``(I) the application of the rules of subsection
(c)(4)(B),
``(J) the application of subsection (d)(6) and
section 1446,
``(K) determining ownership interests held by
residents of a foreign country of concern, and
``(L) determining the starting and ending dates for
periods with respect to the application of this section
under subsection (e), which may be separate dates for
taxes withheld at the source and other taxes.
``(2) Regulations to be consistent with model treaty.--Any
regulations or other guidance issued under this section shall,
to the extent practical, be consistent with the provisions of
the United States model income tax convention dated February 7,
2016.''.
(b) Conforming Amendment to Withholding Tax.--Subchapter A of
chapter 3 of the Internal Revenue Code of 1986 is amended by adding at
the end the following new section:
``SEC. 1447. WITHHOLDING FOR QUALIFIED RESIDENTS OF TAIWAN.
``For reduced rates of withholding for certain residents of Taiwan,
see section 894A.''.
(c) Clerical Amendments.--
(1) The table of sections for subpart D of part II of
subchapter N of chapter 1 of the Internal Revenue Code of 1986
is amended by inserting after the item relating to section 894
the following new item:
``Sec. 894A. Special rules for qualified residents of Taiwan.''.
(2) The table of sections for subchapter A of chapter 3 of
such Code is amended by adding at the end the following new
item:
``Sec. 1447. Withholding for qualified residents of Taiwan.''.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
Committee Consideration and Mark-up Session Held
Ordered to be Reported in the Nature of a Substitute (Amended) by the Yeas and Nays: 40 - 0.
Reported (Amended) by the Committee on Ways and Means. H. Rept. 118-309.
Reported (Amended) by the Committee on Ways and Means. H. Rept. 118-309.
Placed on the Union Calendar, Calendar No. 249.
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