Taipei, Jan. 4 (CNA) Taiwan should step up efforts to strike an agreement with the United States to prevent taxation of the same income twice in both countries and to enhance bilateral supply chain links, Premier Lai Ching-te said Thursday.
Lai made the remarks at a weekly Cabinet meeting after National Development Council (NDC) chief Chen Mei-ling briefed officials on the impacts of the U.S. tax reform on Taiwan, Executive Yuan spokesperson Hsu Kuo- yung said.
As the sweeping U.S. tax reform gives major breaks to corporations, bigger Taiwanese companies might have to adjust their global deployment by relocating to the U.S., according to the NDC study.
It cited the investment plans made by Taiwanese firms Hon Hai and Formosa Plastics in the U.S. states of Wisconsin and Louisiana, respectively, earlier last year as examples of what may happen.
But the NDC said that whether the tax incentives and higher inflows of foreign capital to the U.S. would drive more Taiwanese businesses to shift their investments to the country "remains to be seen" because businesses consider other factors, such as salary levels, production costs and supply chains, in deciding where to set up their factories.
In the absence of a bilateral tax agreement, a Taiwanese subsidiary in the U.S. is subject to a 30 percent withholding tax rate for retained earnings distributed to Taiwan, while the tax rate applied to an American subsidiary in Taiwan is 20 percent.
If an agreement is signed, the tax rates are both expected to be cut to 10 percent.
Lai instructed the Ministry of Finance to facilitate the signing of a taxation agreement with the U.S. to eliminate barriers that double taxation have created to bilateral trade, investment, and the movement of capitals and persons.
Taiwan's government has also launched a series of tax reforms, pending legislative review, among which corporate income tax was raised from 17 to 20 percent.
Wu Tzu-hsin, deputy finance minister, said although Taiwan's corporation income tax was expected to be higher if the tax reform is adopted by the Legislature, the overall tax burden on businesses in the U.S. is still heavier than Taiwan's.
The new corporate income tax of 21 percent in the U.S., lowered from 35 percent, is higher than Taiwan's, while additionally 44 states in the country also levy a corporate income tax, ranging from 3 percent to 12 percent, Wu said.
But Taiwan's economy is expected to benefit from the U.S. tax cuts because they are expected to increase disposable income and thus stimulate consumer spending, which in turn will boost demand from the U.S. market and help Taiwan's economy increase its growth in exports, the NDC said.
