[House Report 118-309]
[From the U.S. Government Publishing Office]


118th Congress }                                          { REPORT 
                        HOUSE OF REPRESENTATIVES
 1st Session   }                                          { 118-309

======================================================================
 
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

                                _______
                                

 December 12, 2023.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Smith of Missouri, from the Committee on Ways and Means, submitted 
                             the following

                              R E P O R T

                        [To accompany H.R. 5988]

    The Committee on Ways and Means, to whom was referred the 
bill (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, 
having considered the same, reports favorably thereon with an 
amendment and recommends that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND..........................................11
          A. Purpose and Summary.................................    11
          B. Background and Need for Legislation.................    11
          C. Legislative History.................................    12
          D. Designated Hearing..................................    13
 II. EXPLANATION OF THE BILL.........................................13
          A. United States-Taiwan Expedited Double-Tax Relief Act 
              (Title I of the Bill)..............................    13
          B. United States-Taiwan Tax Agreement Authorization Act 
              (Title II of the Bill).............................    33
III. VOTE OF THE COMMITTEE...........................................36
 IV. BUDGET EFFECTS OF THE BILL......................................37
          A. Committee Estimate of Budgetary Effects.............    37
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    37
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......37
          A. Committee Oversight Findings and Recommendations....    37
          B. Statement of General Performance Goals and 
              Objectives.........................................    37
          C. Information Relating to Unfunded Mandates...........    37
          D. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    37
          E. Tax Complexity Analysis.............................    38
          F. Duplication of Federal Programs.....................    38
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........38
    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

     TITLE I--UNITED STATES-TAIWAN EXPEDITED DOUBLE-TAX RELIEF ACT

SEC. 101. SHORT TITLE.

  This title may be cited as the ``United States-Taiwan Expedited 
Double-Tax Relief Act''.

SEC. 102. 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.''.

     TITLE II--UNITED STATES-TAIWAN TAX AGREEMENT AUTHORIZATION ACT

SEC. 201. SHORT TITLE.

  This title may be cited as the ``United States-Taiwan Tax Agreement 
Authorization Act''.

SEC. 202. DEFINITIONS.

  In this title:
          (1) Agreement.--The term ``Agreement'' means the tax 
        agreement authorized by section 203(a).
          (2) Appropriate congressional committees.--The term 
        ``appropriate congressional committees'' means--
                  (A) the Committee on Foreign Relations and the 
                Committee on Finance of the Senate; and
                  (B) the Committee on Ways and Means of the House of 
                Representatives.
          (3) Approval legislation.--The term ``approval legislation'' 
        means legislation that approves the Agreement.
          (4) Implementing legislation.--The term ``implementing 
        legislation'' means legislation that makes any changes to the 
        Internal Revenue Code of 1986 necessary to implement the 
        Agreement.

SEC. 203. AUTHORIZATION TO NEGOTIATE AND ENTER INTO AGREEMENT.

  (a) In General.--Subsequent to a determination under section 
894A(e)(1) of the Internal Revenue Code of 1986 (as added by the United 
States-Taiwan Expedited Double-Tax Relief Act), the President is 
authorized to negotiate and enter into a tax agreement relative to 
Taiwan.
  (b) Elements of Agreement.--
          (1) Conformity with bilateral income tax conventions.--The 
        President shall ensure that--
                  (A) any provisions included in the Agreement conform 
                with provisions customarily contained in United States 
                bilateral income tax conventions, as exemplified by the 
                2016 United States Model Income Tax Convention; and
                  (B) the Agreement does not include elements outside 
                the scope of the 2016 United States Model Income Tax 
                Convention.
          (2) Incorporation of tax agreements and laws.--
        Notwithstanding paragraph (1), the Agreement may incorporate 
        and restate provisions of any agreement, or existing United 
        States law, addressing double taxation for residents of the 
        United States and Taiwan.
          (3) Authority.--The Agreement shall include the following 
        statement: ``The Agreement is entered into pursuant to the 
        United States-Taiwan Tax Agreement Authorization Act.''
          (4) Entry into force.--The Agreement shall include a 
        provision conditioning entry into force upon--
                  (A) enactment of approval legislation and 
                implementing legislation pursuant to section 207; and
                  (B) confirmation by the Secretary of the Treasury 
                that the relevant authority in Taiwan has approved and 
                taken appropriate steps required to implement the 
                Agreement.

SEC. 204. CONSULTATIONS WITH CONGRESS.

  (a) Notification Upon Commencement of Negotiations.--The President 
shall provide written notification to the appropriate congressional 
committees of the commencement of negotiations between the United 
States and Taiwan on the Agreement at least 15 calendar days before 
commencing such negotiations.
  (b) Consultations During Negotiations.--
          (1) Briefings.--Not later than 90 days after commencement of 
        negotiations with respect to the Agreement, and every 180 days 
        thereafter until the President enters into the Agreement, the 
        President shall provide a briefing to the appropriate 
        congressional committees on the status of the negotiations, 
        including a description of elements under negotiation.
          (2) Meetings and other consultations.--
                  (A) In general.--In the course of negotiations with 
                respect to the Agreement, the Secretary of the 
                Treasury, in coordination with the Secretary of State, 
                shall--
                          (i) meet, upon request, with the chairman or 
                        ranking member of any of the appropriate 
                        congressional committees regarding negotiating 
                        objectives and the status of negotiations in 
                        progress; and
                          (ii) consult closely and on a timely basis 
                        with, and keep fully apprised of the 
                        negotiations, the appropriate congressional 
                        committees.
                  (B) Elements of consultations.--The consultations 
                described in subparagraph (A) shall include 
                consultations with respect to--
                          (i) the nature of the contemplated Agreement;
                          (ii) how and to what extent the contemplated 
                        Agreement is consistent with the elements set 
                        forth in section 203(b); and
                          (iii) the implementation of the contemplated 
                        Agreement, including--
                                  (I) the general effect of the 
                                contemplated Agreement on existing 
                                laws;
                                  (II) proposed changes to any existing 
                                laws to implement the contemplated 
                                Agreement; and
                                  (III) proposed administrative actions 
                                to implement the contemplated 
                                Agreement.

SEC. 205. APPROVAL AND IMPLEMENTATION OF AGREEMENT.

  (a) In General.--The Agreement may not enter into force unless--
          (1) the President, at least 60 days before the day on which 
        the President enters into the Agreement, publishes the text of 
        the contemplated Agreement on a publicly available website of 
        the Department of the Treasury; and
          (2) there is enacted into law, with respect to the Agreement, 
        approval legislation and implementing legislation pursuant to 
        section 207.
  (b) Entry Into Force.--The President may provide for the Agreement to 
enter into force upon--
          (1) enactment of approval legislation and implementing 
        legislation pursuant to section 207; and
          (2) confirmation by the Secretary of the Treasury that the 
        relevant authority in Taiwan has approved and taken appropriate 
        steps required to implement the Agreement.

SEC. 206. SUBMISSION TO CONGRESS OF AGREEMENT AND IMPLEMENTATION 
                    POLICY.

  (a) Submission of Agreement.--Not later than 270 days after the 
President enters into the Agreement, the President or the President's 
designee shall submit to Congress--
          (1) the final text of the Agreement; and
          (2) a technical explanation of the Agreement.
  (b) Submission of Implementation Policy.--Not later than 270 days 
after the President enters into the Agreement, the Secretary of the 
Treasury shall submit to Congress--
          (1) a description of those changes to existing laws that the 
        President considers would be required in order to ensure that 
        the United States acts in a manner consistent with the 
        Agreement; and
          (2) a statement of anticipated administrative action proposed 
        to implement the Agreement.

SEC. 207. CONSIDERATION OF APPROVAL LEGISLATION AND IMPLEMENTING 
                    LEGISLATION.

  (a) In General.--The approval legislation with respect to the 
Agreement shall include the following: ``Congress approves the 
Agreement submitted to Congress pursuant to section 206 of the United 
States-Taiwan Tax Agreement Authorization Act on ____.'', with the 
blank space being filled with the appropriate date.
  (b) Approval Legislation Committee Referral.--The approval 
legislation shall--
          (1) in the Senate, be referred to the Committee on Foreign 
        Relations; and
          (2) in the House of Representaives, be referred to the 
        Committee on Ways and Means.
  (c) Implementing Legislation Committee Referral.--The implementing 
legislation shall--
          (1) in the Senate, be referred to the Committee on Finance; 
        and
          (2) in the House of Representatives, be referred to the 
        Committee on Ways and Means.

SEC. 208. RELATIONSHIP OF AGREEMENT TO INTERNAL REVENUE CODE OF 1986.

  (a) Internal Revenue Code of 1986 to Control.--No provision of the 
Agreement or approval legislation, nor the application of any such 
provision to any person or circumstance, which is inconsistent with any 
provision of the Internal Revenue Code of 1986, shall have effect.
  (b) Construction.--Nothing in this title shall be construed--
          (1) to amend or modify any law of the United States; or
          (2) to limit any authority conferred under any law of the 
        United States,
unless specifically provided for in this title.

SEC. 209. AUTHORIZATION OF SUBSEQUENT TAX AGREEMENTS RELATIVE TO 
                    TAIWAN.

  (a) In General.--Subsequent to the enactment of approval legislation 
and implementing legislation pursuant to section 207--
          (1) the term ``tax agreement'' in section 203(a) shall be 
        treated as including any tax agreement relative to Taiwan which 
        supplements or supersedes the Agreement to which such approval 
        legislation and implementing legislation relates, and
          (2) the term ``Agreement'' shall be treated as including such 
        tax agreement.
  (b) Requirements, etc., to Apply Separately.--The provisions of this 
title (including section 204) shall be applied separately with respect 
to each tax agreement referred to in subsection (a).

SEC. 210. UNITED STATES TREATMENT OF DOUBLE TAXATION MATTERS WITH 
                    RESPECT TO TAIWAN.

  (a) Findings.--Congress makes the following findings:
          (1) The United States addresses issues with respect to double 
        taxation with foreign countries by entering into bilateral 
        income tax conventions (known as tax treaties) with such 
        countries, subject to the advice and consent of the Senate to 
        ratification pursuant to article II of the Constitution.
          (2) The United States has entered into more than sixty such 
        tax treaties, which facilitate economic activity, strengthen 
        bilateral cooperation, and benefit United States workers, 
        businesses, and other United States taxpayers.
          (3) Due to Taiwan's unique status, the United States is 
        unable to enter into an article II tax treaty with Taiwan, 
        necessitating an agreement to address issues with respect to 
        double taxation.
  (b) Statement of Policy.--It is the policy of the United States to--
          (1) provide for additional bilateral tax relief with respect 
        to Taiwan, beyond that provided for in section 894A of the 
        Internal Revenue Code of 1986 (as added by the United States-
        Taiwan Expedited Double-Tax Relief Act), only after entry into 
        force of an Agreement, as provided for in section 205, and only 
        in a manner consistent with such Agreement; and
          (2) continue to provide for bilateral tax relief with 
        sovereign states to address double taxation and other related 
        matters through entering into bilateral income tax conventions, 
        subject to the Senate's advice and consent to ratification 
        pursuant to article II of the Constitution.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 5988, the United States-Taiwan Expedited 
Double-Tax Relief Act, was amended and ordered reported by the 
Committee on Ways and Means on November 30, 2023.
    To strengthen the U.S.-Taiwan economic alliance and improve 
the United States' competitive position versus China, H.R. 5988 
provides (i) targeted and expedited relief from double taxation 
on U.S.-Taiwan cross-border investment through changes to the 
U.S. tax code, and (ii) authorization for the President to 
negotiate and enter into a tax agreement relative to Taiwan. 
The tax agreement is similar to a bilateral tax treaty, which 
is not an option with Taiwan given its unique status.

                 B. Background and Need for Legislation

    Background--Based in part on a discussion draft released by 
Chairman Smith and Ranking Member Neal, along with Senate 
Finance Committee Chairman Wyden and Ranking Member Crapo, the 
Ways and Means Committee marked up the ``United States-Taiwan 
Expedited Double-Tax Relief Act,'' (H.R. 5988), as amended, on 
November 30, 2023, and ordered the bill favorably reported to 
the House of Representatives.
    Need for legislation--Broad bipartisan support exists for 
strengthening the United States' economic partnership with 
Taiwan. Taiwan is one of the largest trading partners of the 
U.S. and an especially critical trading partner in the 
semiconductor industry and in enhancing our onshoring 
capabilities for advanced manufacturing. The House of 
Representatives recently demonstrated its strong support for 
growing our economic partnership with Taiwan when it 
unanimously passed the first trade agreement signed under the 
U.S.-Taiwan Initiative on 21st-Century Trade (H.R. 4004, the 
United States-Taiwan Initiative on 21st-Century Trade First 
Agreement Implementation Act).\1\
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    \1\The Senate subsequently passed the bill by unanimous consent and 
the President signed the bill into law (becoming Public Law No. 118-
13).
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    To further strengthen that economic partnership, there has 
been strong bipartisan interest in addressing double taxation 
to encourage cross-border investment between the U.S. and 
Taiwan. Taiwan is the United States' largest trading partner 
with whom it does not have an income tax treaty, but Taiwan's 
very unique status precludes the conclusion of a tax treaty. In 
order to address double taxation between the U.S. and Taiwan, a 
unique solution is necessary that provides both targeted and 
expedited tax relief and a path for a more comprehensive tax 
agreement.
    In addition to boosting our economy, a stronger partnership 
with Taiwan serves U.S. national security interests. Taiwan is 
a vibrant democracy that shares our values, but faces a growing 
threat from China, which has ratcheted up its military 
capabilities along Taiwan's coastline. These aggressive 
activities affect the United States. As a global leader in 
manufacturing semiconductors--the chips used not only in 
digital devices and data centers, but also in advanced weapons 
and military equipment--Taiwan plays a key role in the security 
of democratic nations. Strengthening our economic partnership 
will help bring greater stability to the region and provide 
both economic and national security benefits to the U.S. and 
Taiwan.

                         C. Legislative History


Background

    On July 12, Committee Chairman Smith and Ranking Member 
Neal, along with Senate Finance Committee Chair Wyden and 
Ranking Member Crapo, released a discussion draft of 
legislation to address double-tax relief on income from 
activity between the U.S. and Taiwan. Comments were received 
from multiple stakeholders, with many of the comments 
incorporated into H.R. 5988, which was introduced on October 
19, 2023, and referred to the Committee on Ways and Means.

Committee Hearings

    On March 10, 2023, the Committee held a hearing entitled 
``President Biden's Fiscal Year 2024 Budget Request with 
Treasury Secretary Yellen.''
    On March 24, 2023, the Committee held a hearing entitled 
``The Biden Administration's 2023 Trade Policy Agenda with 
United States Trade Representative, Ambassador Tai.''
    On May 9, 2023, the Committee held a field hearing entitled 
``Trade in America: Securing Supply Chains and Protecting the 
American Worker--Staten Island.''

Committee Action

    The Committee on Ways and Means marked up H.R. 5988, the 
``United States-Taiwan Expedited Double-Tax Relief Act of 
2023,'' on November 30, 2023. By amendment in the nature of a 
substitute, the Committee added the United States-Taiwan Tax 
Agreement Authorization Act as Title II of H.R. 5988, and 
ordered the bill, as amended, favorably reported (with a quorum 
being present) by a roll call vote of 40 ayes and 0 nays.

                         D. Designated Hearing

    Pursuant to clause 3(c)(6) of rule XIII, the following 
hearings were used to develop and consider H.R. 5988:
    On March 10, 2023, the Committee held a hearing entitled 
``President Biden's Fiscal Year 2024 Budget Request with 
Treasury Secretary Yellen.''
    On March 24, 2023, the Committee held a hearing entitled 
``The Biden Administration's 2023 Trade Policy Agenda with 
United States Trade Representative, Ambassador Tai.''
    On May 9, 2023, the Committee held a field hearing entitled 
``Trade in America: Securing Supply Chains and Protecting the 
American Worker--Staten Island.''

                      II. EXPLANATION OF THE BILL


A. United States-Taiwan Expedited Double-Tax Relief Act (Title I of the 
Bill; Code sections 860C, 871, 881, 882, 884, 894, 897, 1441, 1442, and 
                 7874; new Code sections 894A and 1447)


                              PRESENT LAW

    The following discussion summarizes U.S. taxation of income 
from cross-border business activity, with emphasis on how the 
rules determine whether the income is subject to tax by the 
United States or another jurisdiction in either the Internal 
Revenue Code\2\ or in bilateral agreements in which the United 
States agrees to relieve double taxation when its jurisdiction 
to tax overlaps or is in conflict with that of another 
jurisdiction.
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    \2\Unless otherwise stated, section references are to the Internal 
Revenue Code of 1986, as amended (the ``Code'').
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    International law generally recognizes the right of each 
sovereign nation to prescribe rules to regulate conduct and 
persons (whether natural or juridical) with a sufficient nexus 
to the sovereign nation. The nexus may be based on nationality 
(i.e., a nexus based on a connection between the relevant 
person and the sovereign nation) or may be territorial (i.e., a 
nexus based on a connection between the relevant conduct and 
the sovereign nation). These concepts have been refined and 
adapted to form the principles for determining whether 
sufficient nexus with a jurisdiction exists to conclude that 
the jurisdiction may enforce its right to tax.

     1. U.S. Tax Principles Common to Inbound and Outbound Taxation

    Taxes based on where activities occur, or where property is 
located, are source-based taxes. The United States generally 
taxes the U.S. trades or businesses of foreign persons and 
sales or other dispositions of interests in U.S. real property 
by foreign persons. In addition, the United States generally 
taxes items of income that are paid by U.S. persons to foreign 
persons. Most jurisdictions, including the United States, have 
rules for determining the source of items of income and expense 
in a broad range of categories, such as compensation for 
services, dividends, interest, royalties, and gains.
    Income taxes based on a person's citizenship, nationality, 
or residence are residence-based taxes. The United States 
generally imposes residence-based taxation on U.S. persons in 
the year in which income is earned. For individuals and 
domestic entities, this results in taxing them on their 
worldwide income, whether derived in the United States or 
abroad, with limited opportunity for deferral of taxation of 
income earned by foreign corporations owned by U.S. 
shareholders. As explained below, income earned by a resident 
of the United States from foreign activities conducted through 
a foreign entity generally is subject to U.S. tax in the year 
earned or not at all. The United States generally taxes foreign 
persons on only U.S.-source income.
    The United States imposes source-based taxation on U.S.-
source income of nonresident alien individuals and other 
foreign persons. Under this system, the application of the Code 
differs depending on whether income arises from outbound 
investment (i.e., foreign investments by U.S. persons) or 
inbound investment (i.e., U.S. investment by foreign persons). 
While the United States taxes inbound and outbound investments 
differently, certain rules are common to the taxation of both, 
including rules relating to residency, entity classification, 
source determination, and transfer pricing.
            Residence
    The Code defines a U.S. person to include all U.S. citizens 
and residents as well as domestic entities such as 
partnerships, corporations, trusts and estates.\3\ Partnerships 
and corporations are domestic if organized or created under the 
laws of the United States, any State, or the District of 
Columbia, unless, in the case of a partnership, the Secretary 
prescribes otherwise by regulation.\4\ All other partnerships 
and corporations (i.e., those organized under the laws of 
foreign countries) are foreign.\5\ Other jurisdictions may use 
factors such as situs or management and control to determine 
residence. As a result, legal entities may have more than one 
tax residence, or, in some cases, no residence. In such cases, 
bilateral treaties may resolve conflicting claims of residence.
---------------------------------------------------------------------------
    \3\Sec. 7701(a)(30).
    \4\Sec. 7701(a)(4) and (10).
    \5\Sec. 7701(a)(5) and (9). Entities organized in a possession or 
territory of the United States are not considered to have been 
organized under the laws of the United States.
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            Exception for corporate inversions
    In certain cases, a foreign corporation that acquires a 
domestic corporation or partnership may be treated as a 
domestic corporation for Federal tax purposes.\6\ This result 
generally applies following a transaction in which, pursuant to 
a plan or a series of related transactions:
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    \6\Sec. 7874. The Treasury Department and the IRS have promulgated 
detailed guidance, through both regulations and several notices, 
addressing these requirements under section 7874 since its enactment in 
2004, and have sought to expand the reach of the section or reduce the 
tax benefits of inversion transactions.
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          1. A domestic corporation becomes a subsidiary of a 
        foreign-incorporated entity or otherwise transfers 
        substantially all of its properties to such an entity;
          2. The former shareholders of the domestic 
        corporation hold (by reason of the stock they had held 
        in the domestic corporation) at least 80 percent (by 
        vote or value) of the stock of the foreign-incorporated 
        entity after the transaction (often referred to as 
        ``stock held by reason of''); and
          3. The foreign-incorporated entity, considered 
        together with all companies connected to it by a chain 
        of greater than 50-percent ownership (the ``expanded 
        affiliated group''), does not have substantial business 
        activities in the entity's country of organization, 
        compared to the total worldwide business activities of 
        the expanded affiliated group.
    If the ``stock held by reason of'' the acquisition is less 
than 80 percent, but at least 60 percent of the stock of the 
foreign corporation, and the other requirements above are 
satisfied, then the foreign corporation is not treated as a 
domestic corporation. Instead, the foreign corporation is 
considered a surrogate foreign corporation for the acquired 
domestic company, which is an expatriated entity that must 
recognize certain ``inversion gain'' post-acquisition 
restructuring\7\ and may be subject to other consequences under 
the provisions enacted in 2017.\8\
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    \7\An excise tax may be imposed on certain stock compensation of 
executives of companies that undertake inversion transactions. Sec. 
4985. In addition, dividends from certain surrogate foreign 
corporations are excluded from qualified dividend income within the 
meaning of section 1(h)(11)(B) and are ineligible to be taxed as net 
capital gains. Sec. 1(h)(11)(C)(iii). As a result, individual 
shareholders in such corporations cannot claim the reduced rate on 
dividends otherwise available under section 1(h)(11).
    \8\See secs. 59A(d)(4) (providing that payments made to expatriated 
entities that reduce gross receipts are base erosion payments) and 
965(l) (disallowing the partial participation exemption deduction for 
computing the transition tax and assessing the additional transition 
tax in the year of inversion if an entity inverts within the 10-year 
period beginning on December 22, 2017).
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            Source of income rules
    Various factors determine the source of income for U.S. tax 
purposes, including the status or nationality of the payor or 
recipient and the location of the activities or assets that 
generate the income. Extensive rules determine whether income 
is considered to be from U.S. sources or foreign sources.\9\ 
Special rules are provided for certain industries, (e.g., 
transportation, shipping, and certain space and ocean 
activities) as well as for income partly from within and partly 
from without the United States.\10\
---------------------------------------------------------------------------
    \9\Sections 861 through 865, generally.
    \10\Sec. 863.
---------------------------------------------------------------------------
    Gains, profits, and income from the sale or exchange of 
inventory property that is either (1) produced (in whole or in 
part) inside the United States and then sold or exchanged 
outside the United States or (2) produced (in whole or part) 
outside the United States and then sold or exchanged inside the 
United States is allocated and apportioned solely on the basis 
of the location of the production activities.\11\ For example, 
income derived from the sale of inventory produced entirely in 
the United States is wholly from U.S. sources, even if title 
passage occurs elsewhere. Likewise, income derived from the 
sale of inventory produced entirely in another country is 
wholly from foreign sources, even if title passage occurs in 
the United States. If inventory is produced only partly in the 
United States, the income derived from its sale is sourced 
partly in the United States regardless of where title to the 
property passes.
---------------------------------------------------------------------------
    \11\Sec. 863(b). Prior to Public Law 115-97, enacted on December 
22, 2017, the source of income from sale of inventory was determined by 
passage of title.
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   2. U.S. Tax Rules Applicable to Foreign Activities of U.S. Persons

    In general, income earned directly by a U.S. person from 
the conduct of a foreign trade or business is taxed 
currently,\12\ while income earned indirectly through certain 
related foreign entities (i.e., controlled foreign corporations 
(``CFCs''))\13\ is taxed in the year earned or not at all. 
Earnings and profits of CFCs are generally taxable in one of 
two ways. First, the earnings may constitute income to U.S. 
shareholders under the traditional anti-deferral regime of 
subpart F, which applies to certain passive income and income 
that is readily movable from one jurisdiction to another.\14\ 
Subpart F was designed as an anti-abuse regime to prevent U.S. 
taxpayers from shifting passive and mobile income to low-tax 
jurisdictions.\15\ Second, the earnings may be subject to 
section 951A, which applies to some foreign-source income of a 
CFC that is not subpart F income (referred to as global 
intangible low-taxed income (``GILTI'')). GILTI was enacted as 
a base protection measure to counter the participation 
exemption system, established by the dividends-received-
deduction, under which the income could potentially be 
distributed back to the U.S. corporation with no U.S. tax 
imposed.\16\ Subpart F income is taxed at full rates with 
related foreign taxes generally eligible for the foreign tax 
credit; GILTI is taxed at reduced rates with additional 
limitations on the use of related foreign tax credits. Both 
subpart F income and GILTI are included by the U.S. shareholder 
without regard to whether the earnings are distributed by the 
CFC.
---------------------------------------------------------------------------
    \12\Such income is called foreign branch income.
    \13\A CFC generally is defined as any foreign corporation in which 
U.S. persons own (directly, indirectly, or constructively) more than 50 
percent of the corporation's stock (measured by vote or value), taking 
into account only ``U.S. shareholders,'' that is, U.S. persons who own 
at least 10 percent of the stock (measured by vote or value). See secs. 
951(b), 957, and 958. Special rules apply with respect to U.S. persons 
that are shareholders (regardless of their percentage ownership) in any 
foreign corporation that is not a CFC but is a passive foreign 
investment company (``PFIC''). See secs. 1291 through 1298. The PFIC 
rules generally seek to prevent the deferral of passive income through 
the use of foreign corporations.
    \14\Subpart F comprises sections 951 through 965.
    \15\See JCS-5-61, ``Tax Effects of Conducting Foreign Business 
through Foreign Corporations'' (July 21, 1961), Part V. See also Rev. 
Act. of 1962, Pub. L. No. 87-834.
    \16\See Reconciliation Recommendations Pursuant to H. Con. Res. 71 
(December 2017).
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    In addition to the taxation of GILTI at reduced rates, U.S. 
corporations generally are taxed at reduced rates on their 
foreign-derived intangible income (``FDII'').\17\ Foreign 
earnings not subject to tax as subpart F income or GILTI 
generally are exempt from U.S. tax. To exempt those earnings, 
dividends received by corporate U.S. shareholders from 
specified 10-percent owned foreign corporations (including 
CFCs) generally are eligible for a 100-percent dividends-
received deduction (``DRD'').\18\ Special rules apply in 
situations in which a U.S. person transfers property to a 
foreign corporation or certain partnerships in certain 
nonrecognition transactions.\19\
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    \17\Sec. 250(a)(1)(A).
    \18\Sec. 245A. The DRD is not limited to dividends from CFCs, but 
rather may be available with respect to any dividend received from a 
specified 10-percent owned foreign corporation by a domestic 
corporation which is a U.S. shareholder with respect to such foreign 
corporation.
    \19\Secs. 367 and 721(c); Treas. Reg. sec. 1.721(c)-1.
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            3. U.S. Tax Rules Applicable to Foreign Persons

    Nonresident aliens and foreign corporations generally are 
subject to U.S. tax only on their U.S.-source income. There are 
two broad types of taxation of U.S.-source income of foreign 
taxpayers: (1) gross-basis tax on income that is ``fixed or 
determinable annual or periodical gains, profits, and income'' 
(i.e., FDAP income), and (2) net-basis tax on income that is 
``effectively connected with the conduct of a trade or business 
within the United States'' (i.e., ECI). FDAP income, although 
nominally subject to a statutory 30-percent gross-basis tax 
withheld at its source, in many cases is subject to a reduced 
rate of, or entirely exempt from, U.S. tax under the Code or a 
bilateral income tax treaty. ECI generally is subject to the 
same U.S. tax rules and rates that apply to business income 
earned by U.S. persons.
    Finally, certain corporations are subject to a base erosion 
and anti-abuse tax (``BEAT'') that is in the nature of a 
minimum tax and payable in addition to all other tax 
liabilities.\20\
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    \20\Sec. 59A.
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Gross-basis taxation of U.S.-source income

    FDAP income received by foreign persons from U.S. sources 
is subject to a 30-percent gross-basis tax (i.e., a tax on 
gross income without reduction for related expenses), which is 
collected by withholding at the source of the payment. FDAP 
income includes interest, dividends, rents, salaries, wages, 
premiums, annuities, compensations, remunerations, and 
emoluments.\21\ The items enumerated in defining FDAP income 
are illustrative, and the words ``annual or periodical'' are 
``merely generally descriptive'' of the payments within the 
purview of the statute.\22\ The categories of income subject to 
the 30-percent tax and the categories for which withholding is 
required generally are coextensive.\23\
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    \21\Secs. 871(a) and 881. FDAP income that is ECI is taxed as ECI.
    \22\Commissioner v. Wodehouse, 337 U.S. 369, 393 (1949).
    \23\See secs. 1441 and 1442.
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            Exclusions from FDAP income
    FDAP income encompasses a broad range of gross income but 
has important exceptions. Capital gains of nonresident aliens 
generally are foreign source; however, capital gains of 
nonresident aliens present in the United States for 183 days or 
more\24\ during the year are income from U.S. sources subject 
to gross-basis taxation.\25\ In addition, U.S.-source gains 
from the sale or exchange of intangibles are subject to tax and 
withholding if they are contingent on the productivity, use, or 
disposition of the property sold.\26\
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    \24\For purposes of this rule, whether a person is considered a 
resident in the United States is determined by application of the rules 
under section 7701(b).
    \25\Sec. 871(a)(2). In addition, certain capital gains from sales 
of U.S. real property interests are subject to tax as ECI under the 
Foreign Investment in Real Property Tax Act of 1980 (``FIRPTA''). See 
sec. 897(a)(1).
    \26\Secs. 871(a)(1)(D) and 881(a)(4).
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    Interest on bank deposits may qualify for exemption from 
treatment as FDAP income on two grounds. First, interest on 
deposits with domestic banks and savings and loan associations, 
and certain amounts held by insurance companies, is U.S.-source 
income but is exempt from the 30-percent tax when paid to a 
foreign person.\27\ Second, interest on deposits with foreign 
branches of domestic banks and domestic savings and loan 
associations is not U.S.-source income and, thus, is not 
subject to U.S. tax.\28\ Interest and original issue discount 
on certain short-term obligations also is exempt from U.S. tax 
when paid to a foreign person.\29\ In addition, an exception to 
information reporting requirements may apply with respect to 
payments of such exempt amounts.\30\
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    \27\Secs. 871(i)(2)(A) and 881(d); Treas. Reg. sec. 1.1441-
1(b)(4)(ii).
    \28\Sec. 861(a)(1); Treas. Reg. sec. 1.1441-1(b)(4)(iii).
    \29\Secs. 871(g)(1)(B) and 881(a)(3); Treas. Reg. sec. 1.1441-
1(b)(4)(iv).
    \30\Treas. Reg. sec. 1.1461-1(c)(2)(ii)(A) and (B). A bank must 
report interest if the recipient is a nonresident alien who resides in 
a country with which the United States has a satisfactory exchange of 
information program under a bilateral agreement and the deposit is 
maintained at an office in the United States. Treas. Reg. secs. 1.6049-
4(b)(5) and -8. The IRS publishes lists of the countries whose 
residents are subject to the reporting requirements, and those 
countries with respect to which the reported information is 
automatically exchanged. See Rev. Proc. 2022-35, 2022-40 I.R.B. 270.
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    Although FDAP income includes U.S.-source portfolio 
interest, such interest is specifically exempt from the 30-
percent gross-basis tax. Portfolio interest is any interest 
(including original issue discount) that is paid on an 
obligation that is in registered form and for which the 
beneficial owner has provided to the U.S. withholding agent a 
statement certifying that the beneficial owner is not a U.S. 
person.\31\ Portfolio interest, however, does not include 
interest received by a 10-percent shareholder,\32\ certain 
contingent interest,\33\ interest received by a CFC from a 
related person,\34\ or interest received by a bank on an 
extension of credit made pursuant to a loan agreement entered 
into in the ordinary course of its trade or business.\35\
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    \31\Sec. 871(h)(2).
    \32\Sec. 871(h)(3). The exemption does not apply to interest 
payments made to a foreign lender that owns 10 percent or more of the 
voting power (but not value) of the stock of the borrower.
    \33\Sec. 871(h)(4).
    \34\Sec. 881(c)(3)(C).
    \35\Sec. 881(c)(3)(A).
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            Withholding of 30-percent gross-basis tax
    The 30-percent tax on FDAP income is generally collected by 
means of withholding.\36\ Withholding on FDAP payments to 
foreign payees is required unless the withholding agent (i.e., 
the person making the payment to the foreign person) can 
establish that the beneficial owner of the amount is eligible 
for an exemption from withholding or a reduced rate of 
withholding under an income tax treaty.\37\
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    \36\Secs. 1441 and 1442.
    \37\A withholding agent includes any U.S. or foreign person that 
has the control, receipt, custody, disposal, or payment of an item of 
income of a foreign person subject to withholding. Treas. Reg. sec. 
1.1441-7(a). See also Treas. Reg. sec. 1.1441-6 (providing, in part, 
the requirements (including documentary evidence) that must be 
satisfied for purposes of claiming the benefits of an exemption from or 
reduced rate of withholding under a treaty).
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    Often, the income subject to withholding is the only income 
of the foreign person subject to any U.S. tax. If the foreign 
person has no ECI and the withholding is sufficient to satisfy 
the tax liability with respect to FDAP income, the foreign 
person generally is not required to file a U.S. Federal income 
tax return. Accordingly, the withholding of the 30-percent 
gross-basis tax generally represents the collection of the 
foreign person's final U.S. tax liability.
    To the extent that a withholding agent withholds an amount, 
the withheld tax is credited to the foreign recipient of the 
income.\38\ If the agent withholds more than is required, and 
that results in an overpayment of tax, the foreign recipient 
may file a claim for refund.
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    \38\Sec. 1462.
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Net-basis taxation of income from conduct of a trade or business within 
        the United States

    Income that is effectively connected with the conduct of a 
trade or business within the United States (``ECI'') generally 
is subject to tax on a net basis under the same U.S. tax rules 
and rates that apply to business income earned by U.S. 
persons.\39\
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    \39\Secs. 871(b) and 882.
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            U.S. trade or business
    A foreign person is subject to U.S. tax on a net basis if 
the person is engaged in a U.S. trade or business. Partners in 
a partnership and beneficiaries of an estate or trust are 
treated as engaged in a U.S. trade or business if the 
partnership, estate, or trust is so engaged.\40\
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    \40\Sec. 875.
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    Whether a foreign person is engaged in a U.S. trade or 
business is a factual question that has generated a significant 
amount of case law. Basic issues include whether the activity 
rises to the level of a trade or business, whether a trade or 
business has sufficient connections to the United States, and 
whether the relationship between the foreign person and persons 
performing activities in the United States for the foreign 
person is sufficient to attribute those activities to the 
foreign person.
    The trade or business rules differ from one activity to 
another. The term ``trade or business within the United 
States'' expressly includes the performance of personal 
services within the United States.\41\ Detailed rules govern 
whether trading in stock or securities, or in commodities, 
constitutes the conduct of a U.S. trade or business.\42\ A 
foreign person who trades in stock or securities, or in 
commodities, in the United States through an independent agent 
generally is not treated as engaged in a U.S. trade or business 
if the foreign person does not have an office or other fixed 
place of business in the United States through which trades are 
carried out. A foreign person who trades stock or securities, 
or commodities, for the person's own account also generally is 
not considered to be engaged in a U.S. trade or business so 
long as the foreign person is not a dealer in stock or 
securities, or in commodities. This may be the case even in the 
presence of an office or fixed place of business in the United 
States through which trades for the person's own account are 
carried out.
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    \41\Sec. 864(b).
    \42\Sec. 864(b)(2) and Treas. Reg. sec. 1.864-2(c) and (d).
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    For eligible foreign persons, U.S. bilateral income tax 
treaties restrict the application of net-basis U.S. taxation. 
Under each treaty, the United States is permitted to tax 
business profits only to the extent those profits are 
attributable to a U.S. permanent establishment of the foreign 
person. The threshold level of activities that constitute a 
permanent establishment is generally higher than the threshold 
level of activities that constitute a U.S. trade or business. 
For example, a permanent establishment typically requires the 
maintenance of a fixed place of business over a significant 
period of time.
            Effectively connected income
    A foreign person that is engaged in the conduct of a trade 
or business within the United States is subject to U.S. net-
basis taxation on ECI from that trade or business. Specific 
statutory rules govern whether income is ECI.\43\
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    \43\Sec. 864(c).
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    In general, for a foreign person engaged in the conduct of 
a U.S. trade or business, all income, gain, or loss from 
sources within the United States is treated as ECI.\44\
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    \44\Sec. 864(c)(3).
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    In the case of U.S.-source capital gain and U.S.-source 
income of a type that would be subject to gross-basis U.S. 
taxation, the factors taken into account in determining whether 
the income is ECI include whether the income is derived from 
assets used in or held for use in the conduct of the U.S. trade 
or business, and whether the activities of the U.S. trade or 
business were a material factor in the realization of the 
amount (the ``asset use'' and ``business activities'' 
tests).\45\ Under the asset use and business activities tests, 
due regard is given to whether such asset or such income, gain, 
deduction, or loss was accounted for through the trade or 
business.
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    \45\Sec. 864(c)(2).
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    A foreign person that is engaged in a U.S. trade or 
business may have limited categories of foreign-source income 
that are considered to be ECI.\46\ A foreign tax credit may be 
allowed with respect to foreign income tax imposed on such 
income.\47\ Foreign-source income not included in one of those 
categories generally is exempt from U.S. tax.
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    \46\A foreign person's income from foreign sources generally is 
considered to be ECI only if the person has an office or other fixed 
place of business within the United States to which the income is 
attributable and the income is in one of the following categories: (1) 
rents or royalties for the use of patents, copyrights, secret processes 
or formulas, goodwill, trademarks, trade brands, franchises, or other 
like intangible properties derived in the active conduct of the trade 
or business; (2) interest or dividends derived in the active conduct of 
a banking, financing, or similar business within the United States or 
received by a corporation the principal business of which is trading in 
stocks or securities for its own account; or (3) income derived from 
the sale or exchange (outside the United States), through the U.S. 
office or fixed place of business, of inventory or property held by the 
foreign person primarily for sale to customers in the ordinary course 
of the trade or business, unless the sale or exchange is for use, 
consumption, or disposition outside the United States and an office or 
other fixed place of business of the foreign person in a foreign 
country participated materially in the sale or exchange. Foreign-source 
dividends, interest, and royalties are not treated as ECI if the items 
are paid by a foreign corporation more than 50 percent (by vote) of 
which is owned directly, indirectly, or constructively by the recipient 
of the income. Sec. 864(c)(4)(B) and (D)(i).
    \47\See sec. 906.
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    In determining whether a foreign person has a U.S. office 
or other fixed place of business, the office or other fixed 
place of business of an independent agent generally is 
disregarded. The place of business of an agent other than an 
independent agent acting in the ordinary course of business is 
not disregarded, however, if the agent either has the authority 
(regularly exercised) to negotiate and conclude contracts in 
the name of the foreign person or has a stock of merchandise 
from which the agent regularly fills orders on behalf of the 
foreign person.\48\ If a foreign person has a U.S. office or 
fixed place of business, income, gain, deduction, or loss is 
not considered attributable to the office unless the office is 
a material factor in the production of the income, gain, 
deduction, or loss and the office regularly carries on 
activities of the type from which the income, gain, deduction, 
or loss is derived.\49\
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    \48\Sec. 864(c)(5)(A).
    \49\Sec. 864(c)(5)(B).
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            Certain sales and other dispositions
    Income, gain, deduction, or loss for a particular year 
generally is not treated as ECI if the foreign person is not 
engaged in a U.S. trade or business in that year.\50\ If, 
however, income or gain taken into account for a taxable year 
is attributable to activity in a prior taxable year (i.e., such 
as the sale or exchange of property, the performance of 
services, or any other transaction), the income or gain is ECI 
if the income or gain would have been ECI in the prior 
year.\51\ If any property ceases to be used or held for use in 
connection with the conduct of a U.S. trade or business and the 
property is disposed of within 10 years after the cessation, 
the income or gain attributable to the disposition of the 
property is ECI if the income or gain would have been ECI had 
the disposition occurred immediately before the property ceased 
to be used or held for use in connection with the conduct of a 
U.S. trade or business.\52\
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    \50\Sec. 864(c)(1)(B).
    \51\Sec. 864(c)(6).
    \52\Sec. 864(c)(7).
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            Allowance of deductions
    Taxable ECI is computed by taking into account deductions 
associated with gross ECI. Regulations address the allocation 
and apportionment of deductions between ECI and other income. 
Certain deductions may be allocated and apportioned on the 
basis of units sold, gross sales or receipts, costs of goods 
sold, profits contributed, expenses incurred, assets used, 
salaries paid, space used, time spent, or gross income 
received. Specific rules provide for the allocation and 
apportionment of research and experimental expenditures, legal 
and accounting fees, income taxes, losses on dispositions of 
property, and net operating losses. In general, interest is 
allocated and apportioned based on assets rather than income.
            Sales of partnership interests
    Gain or loss from the sale or exchange of a partnership 
interest is treated as effectively connected with a U.S. trade 
or business to the extent that the transferor would have had 
effectively connected gain or loss had the partnership sold all 
of its assets at fair market value as of the date of the sale 
or exchange.\53\ Any gain or loss from such hypothetical asset 
sale by the partnership must be allocated to interests in the 
partnership in the same manner as non-separately stated income 
and loss.
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    \53\Sec. 864(c)(8)(B).
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    The transferee of a partnership interest must withhold 10 
percent of the amount realized on the sale or exchange of a 
partnership interest unless the transferor certifies that the 
sale qualifies for an exception from withholding, e.g., that 
the transferor is not a nonresident alien individual or foreign 
corporation or that there is no realized gain from the 
sale.\54\ If the transferee fails to withhold the correct 
amount, the partnership is required to deduct and withhold from 
distributions to the transferee partner an amount equal to the 
amount the transferee failed to withhold.\55\
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    \54\Sec. 1446(f)(1).
    \55\Sec. 1446(f)(4); Treas. Reg. sec. 1.1446(f)-2(b).
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            Foreign Investment in Real Property Act (``FIRPTA'')
    A foreign person's gain or loss from the disposition of a 
U.S. real property interest (``USRPI'') is treated as ECI.\56\ 
Thus, a foreign person subject to tax on such a disposition is 
required to file a U.S. tax return. In the case of a foreign 
corporation, the gain from the disposition of a USRPI may also 
be subject to the branch profits tax at a 30-percent rate (or 
lower treaty rate). Certain sales of USRPI are exempt from this 
tax. For example, qualified foreign pension funds (``QFPF'') 
are not treated as a nonresident alien individual or foreign 
corporation subject to tax under FIRPTA,\57\ foreign 
governments are exempt from FIRPTA tax on gain from certain 
sales of stock of U.S. real property holding corporations,\58\ 
and equity interests in ``domestically controlled'' REITs are 
not USRPIs.\59\
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    \56\Sec. 897(a).
    \57\Sec. 897(l)(1).
    \58\Treas. Reg. sec. 1.892-3T(a).
    \59\Sec. 897(h)(2).
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    The payor of income that FIRPTA treats as ECI is generally 
required to withhold U.S. tax from the payment.\60\ The foreign 
person can request a refund with its U.S. tax return, if 
appropriate, based on that person's overall tax liability for 
the taxable year.
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    \60\Sec. 1445 and regulations thereunder.
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         4. Special Measures To Address Potential Tax Avoidance

            Base erosion and anti-abuse tax
    The base erosion and anti-abuse tax (the ``BEAT'') is an 
additional tax imposed on certain multinational corporations 
with respect to payments to foreign affiliates.\61\
---------------------------------------------------------------------------
    \61\Sec. 59A.
---------------------------------------------------------------------------
    The BEAT applies only to corporate taxpayers with average 
annual gross receipts for the three-taxable-year period ending 
with the preceding taxable year in excess of $500 million, and 
is determined, in part, by the extent to which a taxpayer has 
made payments to foreign related parties.\62\ The BEAT 
generally does not apply to taxpayers for which reductions to 
taxable income (``base erosion tax benefits'') arising from 
payments to foreign related parties (``base erosion payments'') 
are less than three percent of total deductions (i.e., a ``base 
erosion percentage'' of less than three percent).\63\
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    \62\For this purpose, a related party is, with respect to the 
taxpayer, any 25-percent owner of the taxpayer; any person who is 
related (within the meaning of section 267(b) or 707(b)(1)) to the 
taxpayer or any 25-percent owner of the taxpayer; and any other person 
who is related (within the meaning of section 482) to the taxpayer. 
Sec. 59A(g). The 25-percent ownership threshold is determined by vote 
or value.
    \63\Sec. 59A.
---------------------------------------------------------------------------
    For a taxpayer subject to the BEAT (an ``applicable 
taxpayer''), the additional tax (the ``base erosion minimum tax 
amount'' or ``BEAT liability'') for the year generally equals 
the excess, if any, of 10 percent of its modified taxable 
income over an amount equal to its regular tax liability 
reduced (but not below zero) by the sum of certain tax 
credits.\64\
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    \64\Sec. 59A(e). For taxable years beginning after December 31, 
2025, the 10-percent rate on modified taxable income is increased to 
12.5 percent, and regular tax liability is reduced (and the base 
erosion minimum tax amount is therefore increased) by the sum of all 
the taxpayer's income tax credits for the taxable year. Sec. 59A(b)(2). 
In addition, special rules with respect to banks and securities dealers 
provide that for purposes of determining whether they are subject to 
the BEAT, banks and securities dealers are subject to a base erosion 
percentage threshold of two percent (rather than three percent), and if 
that threshold is met, such persons are subject to a tax rate on its 
modified taxable income that is one-percentage point higher than the 
generally applicable tax rate. Secs. 59A(b)(3) and 59A(e)(1)(C).
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            Branch profits taxes
    The branch profits tax generally seeks to equalize the tax 
treatment of a dividend to a foreign person paid from a 
domestic branch with that paid from a domestic corporation. A 
domestic corporation is subject to U.S. income tax on its net 
income. The earnings of the domestic corporation may be subject 
to a second tax, this time at the shareholder level, when 
dividends are paid. When the shareholders are foreign, the 
second-level tax may be collected by withholding. Unless the 
portfolio interest exemption or another exemption applies, 
interest payments made by a domestic corporation to foreign 
creditors are likewise subject to withholding tax. To 
approximate those second-level withholding taxes imposed on 
payments made by domestic subsidiaries to their foreign 
shareholders, the United States taxes a foreign corporation 
that is engaged in a U.S. trade or business through a U.S. 
branch on amounts of U.S. earnings and profits that are shifted 
(to the head office) out of, or amounts of interest that are 
deducted by, the U.S. branch of the foreign corporation.\65\ 
Those branch taxes may be reduced or eliminated under an 
applicable income tax treaty.\66\
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    \65\Under the branch profits tax, the United States imposes a tax 
of 30 percent on a foreign corporation's ``dividend equivalent 
amount.'' Sec. 884(a). The dividend equivalent amount generally is the 
earnings and profits of a U.S. branch of a foreign corporation 
attributable to its ECI. Sec. 884(b).
    Interest paid by a U.S. trade or business of a foreign corporation 
generally is treated as if paid by a domestic corporation and therefore 
generally is subject to 30-percent withholding tax if paid to a foreign 
person. Sec. 884(f)(1)(A). Certain ``excess interest'' of a U.S. trade 
or business of a foreign corporation is treated as if paid by a U.S. 
corporation to a foreign parent and, therefore, also may be subject to 
30-percent withholding tax. Sec. 884(f)(1)(B). For this purpose, excess 
interest is the excess of the interest expense of the foreign 
corporation apportioned to the U.S. trade or business over the amount 
of interest paid by the trade or business.
    \66\See Treas. Reg. secs. 1.884-1(g) and -4(b)(8).
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            Hybrid arrangements
    Hybrid arrangements exploit differences in the tax 
treatment of a transaction or entity under the laws of two or 
more tax jurisdictions to achieve tax benefits, including 
double nontaxation and deferral. Special rules seek to combat 
the use of such arrangements. These rules include denying 
deductions relating to certain interest and royalty 
payments.\67\ Specifically, no deduction is allowed for any 
``disqualified related party amount''\68\ that is paid or 
accrued pursuant to a hybrid transaction\69\ or that is paid or 
accrued by, or to, a hybrid entity.\70\
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    \67\Sec. 267A; see also sec. 245A(e) (addressing hybrid dividends).
    \68\A disqualified related party amount is any interest or royalty 
paid or accrued to a related party to the extent that: (1) there is no 
corresponding inclusion to the related party under the tax law of the 
country of which such related party is a resident for tax purposes or 
in which such related party is subject to tax, or (2) such related 
party is allowed a deduction with respect to such amount under the tax 
law of such country. Sec. 267A(b)(1). A disqualified related party 
amount does not include any payment to the extent such payment is 
included in the gross income of a U.S. shareholder under subpart F. In 
general, a related party is any person that controls, or is controlled 
by, the taxpayer, with control being direct or indirect ownership of 
more than 50 percent of the vote, value, or beneficial interests of the 
relevant person. Sec. 267A(b)(2).
    \69\A hybrid transaction is any transaction, series of 
transactions, agreement, or instrument one or more payments with 
respect to which are treated as interest or royalties for Federal 
income tax purposes and which are not so treated for purposes of the 
tax law of the foreign country of which the recipient of such payment 
is resident for tax purposes or in which the recipient is subject to 
tax. Sec. 267A(c).
    \70\A hybrid entity is any entity which is either: (1) treated as 
fiscally transparent for Federal income tax purposes but not so treated 
for purposes of the tax law of the foreign country of which the entity 
is resident for tax purposes or in which the entity is subject to tax 
or (2) treated as fiscally transparent for purposes of the tax law of 
the foreign country of which the entity is resident for tax purposes or 
in which the entity is subject to tax but not so treated for Federal 
income tax purposes. Sec. 267A(d).
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      5. Resolving Overlapping or Conflicting Jurisdiction to Tax

    Multinational enterprises operating in multiple countries 
may find that the same item of income is subject to tax under 
the rules of two or more jurisdictions. Such double taxation 
may be mitigated by domestic laws permitting credit or 
deduction for income taxes paid to another jurisdiction or by 
bilateral tax treaties. Another related objective of such 
treaties is the removal of barriers to trade, capital flows, 
and commercial travel that may be caused by overlapping tax 
jurisdictions and by the burdens of complying with the tax laws 
of a jurisdiction when a person's contacts with, and income 
derived from, that jurisdiction are minimal.

Relief from double taxation by statute

    Subject to certain limitations, U.S. citizens, resident 
individuals, and domestic corporations are allowed a credit for 
foreign income taxes they pay. In addition, a domestic 
corporation is allowed a credit for foreign income taxes paid 
by a CFC with respect to income included by the corporation as 
subpart F income and GILTI; such taxes are deemed to have been 
paid by the domestic corporation for purposes of calculating 
the foreign tax credit.
    The foreign tax credit generally is limited to a taxpayer's 
U.S. tax liability on its foreign-source taxable income. The 
limit is intended to ensure that the credit mitigates double 
taxation of foreign-source income without offsetting U.S. tax 
on U.S.-source income. The limit is computed by multiplying a 
taxpayer's total pre-credit U.S. tax liability for the year by 
the ratio of the taxpayer's foreign-source taxable income for 
the year to the taxpayer's total taxable income for the year. 
If the total amount of foreign income taxes paid and deemed 
paid for the year exceeds the taxpayer's foreign tax credit 
limitation for the year, the taxpayer may (in certain cases) 
carry back the excess foreign taxes to the previous year and 
then carry forward any remaining excess to one of the 10 
succeeding taxable years. No carryback or carryover of excess 
foreign tax credits are allowed in the GILTI foreign tax credit 
limitation category.

Bilateral treaties to relieve double taxation

    The United States is a partner in numerous bilateral 
treaties that aim to avoid international double taxation and to 
prevent tax avoidance and evasion. The United States Model 
Income Tax Convention of 2016 (``Model Treaty'') was published 
in 2016 and reflects the most recent comprehensive statement of 
U.S. policy with respect to tax treaties.\71\ As explained in 
the Preamble published contemporaneously with the Model Treaty, 
the provisions therein included both refinements of provisions 
that have been included in U.S. tax treaties, as well as new 
provisions, not yet incorporated in a bilateral treaty, that 
deny treaty benefits on deductible payments of highly mobile 
income that are made to related persons that enjoy low or no 
taxation with respect to that income under a special tax 
regime.\72\ To a large extent, the treaty provisions designed 
to carry out these objectives supplement U.S. tax law 
provisions having the same objectives; treaty provisions may 
modify the generally applicable statutory rules with provisions 
that take into account the particular tax system of the treaty 
partner.
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    \71\The Model Treaty has been updated periodically. The Model 
Treaty and its Preamble, as well as text of earlier Model Treaties, are 
available at https://home.treasury.gov/policy-issues/tax-policy/
treaties.
    \72\For example, the Model Treaty denies treaty benefits when U.S. 
source payments are made to a beneficial owner that benefits from a 
special tax regime, as defined in Article 3 (General Definitions), 
subparagraph (l) of paragraph 1; the benefits that may be denied 
include the reduced withholding rates on dividends, interest and 
royalties that are paid to persons that fail to satisfy the limitation 
on benefits requirements in Article 22 (Limitation on Benefits).
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    The objective of limiting double taxation generally is 
accomplished in treaties through the agreement of each country 
to allocate taxing authority by limiting, in specified 
situations, its right to tax income earned within its territory 
by residents of the other country. For the most part, the 
various rate reductions and exemptions agreed to by the country 
in which income is derived (the ``source country'') in treaties 
are premised on the assumption that the country of residence of 
the taxpayer deriving the income (the ``residence country'') 
may tax the income at levels comparable to those imposed by the 
source country on its residents. Treaties also provide for the 
elimination of double taxation by requiring the residence 
country to allow a credit for taxes that the source country 
retains the right to impose under the treaty. In addition, in 
the case of certain types of income, treaties may provide for 
exemption by the residence country of income taxed by the 
source country.
    Treaties define the term ``resident'' so that an individual 
or corporation generally will not be subject to tax as a 
resident by both countries. A ``limitation on benefits'' 
provision in treaties further determines whether a treaty 
resident is a qualified person permitted to receive treaty 
benefits. This provision limits the ability of third country 
residents to engage in treaty shopping by establishing conduit 
legal entities in either the United States or the treaty 
partner jurisdiction. The provision sets forth objective tests 
that commonly include a publicly traded company test, an 
ownership and base erosion test, and an active trade or 
business test.
    Treaties generally provide that neither country may tax 
business income derived by residents of the other country 
unless the business activities in the taxing jurisdiction are 
substantial enough to constitute a permanent establishment or 
fixed base in that jurisdiction, and the business income is 
attributable to that permanent establishment. As explained 
above, U.S. bilateral income tax treaties restrict the 
application of net-basis U.S. taxation by requiring a threshold 
for permanent establishment status that is higher than that 
required to constitute a U.S. trade or business under the Code. 
As a result, a foreign corporation engaged in a U.S. trade or 
business but not through a permanent establishment generally 
would not be taxable in the United States under an applicable 
treaty. The term ``attributable to'' is generally analogous to 
the ``effectively connected'' concept in section 864(c). 
Treaties also contain commercial visitation exemptions under 
which individual residents of one country performing personal 
services in the other are not required to pay tax in that other 
country unless their contacts exceed certain specified minimums 
(for example, presence for a set number of days or earnings in 
excess of a specified amount).
    Treaties address the taxation of passive income such as 
dividends, interest, and royalties from sources within one 
country derived by residents of the other country either by 
providing that the income is taxed only in the recipient's 
country of residence or by reducing the rate of the source 
country's withholding tax imposed on the income. In this 
regard, the United States agrees in its tax treaties to reduce 
its 30-percent withholding tax (or, in the case of some income, 
to eliminate it entirely)\73\ in return for reciprocal 
treatment by its treaty partner. In particular, under the Model 
Treaty and many U.S. tax treaties, source-country taxation of 
most payments of interest and royalties is eliminated, and some 
recent U.S. treaties forbid the source country from imposing 
withholding tax on dividends paid by an 80-percent owned 
subsidiary to a parent corporation organized in the other 
treaty country.
---------------------------------------------------------------------------
    \73\The rates agreed upon in U.S. bilateral tax treaties for income 
other than personal services income are found in ``Table 1. Tax Rates 
on Income Other Than Personal Service Income Under Chapter 3, Internal 
Revenue Code, and Income Tax Treaties (Rev. May 2023)'' at https://
www.irs.gov/individuals/international-taxpayers/tax-treaty-tables.
---------------------------------------------------------------------------
    In its treaties, the United States, as a matter of policy, 
generally retains the right to tax its citizens and residents 
on their worldwide income as if the treaty had not come into 
effect. The United States also provides in its treaties that it 
allows a credit against U.S. tax for income taxes paid to the 
treaty partners, subject to the various limitations of U.S. 
law.

                           REASONS FOR CHANGE

    There is broad bipartisan support for strengthening our 
economic partnership with Taiwan. Taiwan is one of the largest 
trading partners of the United States and is an especially 
critical trading partner in the semiconductor industry. The 
Committee believes that the absence of a bilateral income tax 
treaty with Taiwan results in an unacceptable inability to 
relieve double taxation and is a hindrance to the ability of 
the United States to achieve the full potential of U.S. efforts 
to develop its capacity to produce semiconductor chips. In the 
absence of a tax treaty, legislative efforts are necessary to 
approximate the relief from double taxation that a treaty would 
ordinarily allow. The bill does so in Title I by providing 
changes to the Code that are comparable to specific benefits 
described in articles in the Model Treaty, including reduction 
in withholding tax rates on certain categories of income.
    The benefits conferred by Title I of the bill are effective 
only when the Secretary confirms that Taiwan provides 
reciprocal benefits to U.S. persons. While developing this 
legislation, the Committee has become aware of an existing 
asymmetry in how Taiwan and the United States treat amounts 
received by residents of one jurisdiction for services 
performed for residents of the other jurisdiction (the ``taxing 
jurisdiction''). For services performed outside the taxing 
jurisdiction, Taiwan and the United States diverge. The United 
States imposes a gross basis tax on outbound payments for 
services provided by foreign persons only if those amounts are 
from sources in the United States. Because our sourcing rules 
generally do not treat amounts paid for services performed 
outside the United States as from U.S. sources, such amounts 
generally are not subject to our gross basis tax. It is our 
understanding, however, that Taiwan imposes a gross basis tax 
on all outbound payments for services provided by foreign 
persons, even if the services in question are performed outside 
Taiwan. The Committee believes that the reciprocity 
contemplated in the legislation cannot be confirmed if this 
disparity in treatment of business income remains.
    In addition, Title II of the bill ensures that additional 
measures may be enacted as needed to enforce and expand such 
relief with respect to Taiwan after further executive 
negotiation, in consultation with appropriate committees of 
both chambers of Congress, followed by approving and 
implementing legislation.

                        EXPLANATION OF PROVISION

    Under the provision, income from U.S. sources earned or 
received by qualified residents of Taiwan is entitled to 
certain benefits. These benefits include reduced tax rates for 
income otherwise subject to the 30-percent gross-basis tax; 
with respect to income effectively connected with a U.S. trade 
or business, taxation of only that income effectively connected 
with a U.S. permanent establishment; and preferential treatment 
of wages and related income earned by such qualified residents. 
The new rules are analogous to provisions typical in bilateral 
treaties to which the United States is a party and are based on 
relevant language found in the Model Treaty. The provision 
requires general anti-abuse standards similar to those in 
section 894(c) to deny benefits when payments are made through 
hybrid entities. The proposed rules are applicable only if 
reciprocal provisions apply to U.S. persons with respect to 
income sourced in Taiwan.

Treatment of certain income from U.S. sources

    Special rules addressing the treatment of several forms of 
income received by qualified residents of Taiwan from U.S. 
sources are described below. Interest, royalties, certain gains 
and dividends that would otherwise be subject to a 30-percent 
gross-basis tax (i.e., a tax on gross income without reduction 
for related expenses) withheld at the source are eligible for 
reduced rates. Other types of income received by individuals 
that are subject to net-basis tax are also eligible for relief 
under provisions that address qualified wages and income of 
athletes and entertainers.
            Interest, royalties and gains
    Tax on U.S.-source interest (other than original issue 
discount), royalties, amounts described in section 
871(a)(1)(C), and gains described in section 871(a)(1)(D) that 
are paid to or received by a qualified resident of Taiwan is 
reduced to 10 percent. The treatment of these types of income 
is consistent with that provided under Model Treaty Articles 11 
(Interest), 12 (Royalties), and 13 (Gains).
            Dividends
    Tax on U.S.-source dividends that are paid to or received 
by a qualified resident of Taiwan is reduced to 15 percent. The 
reduction in rates follows the treaty benefits provided under 
Model Treaty Article 10 (Dividends).
    The reduced rates do not apply to amounts subject to 
FIRPTA; payments between an expatriated entity and a related 
party; 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; and dividends paid by a REIT 
other than qualified REIT dividends. A dividend paid by a REIT 
is a qualified REIT dividend if the dividend is paid with 
respect to a class of shares that is publicly traded and the 
owner of the dividend holds not more than five percent of any 
class of shares in the REIT.
    Certain qualified residents of Taiwan that are taxable as 
corporations in Taiwan may be eligible for a further reduction 
in the tax rate (i.e., from 15 percent to 10 percent) with 
respect to dividends, provided that certain holding period and 
ownership thresholds are met. To qualify for the 10-percent tax 
rate on dividends, at all times during the 12-month period 
ending on the date on which the stock in a corporation becomes 
ex-dividend with respect to such dividend, the dividend 
recipient must be a qualified resident of Taiwan and directly 
own at least 10 percent of the vote and value of the total 
outstanding shares of stock in such corporation. For purposes 
of the 12-month period, a dividend recipient shall be permitted 
to tack the holding period of an entity taxed as a corporation 
in Taiwan from whom the dividend recipient acquired such stock, 
if that entity was a qualified resident of Taiwan and a 
``connected person'' with respect to the dividend recipient at 
the time the share was acquired. Persons are ``connected 
persons'' if one person owns, directly or indirectly, at least 
50 percent of the beneficial interest in the other (or, if a 
corporation, at least 50 percent of the vote and value of its 
shares); a third person owns, directly or indirectly, at least 
50 percent of the beneficial interest in each person (or, if a 
corporation, at least 50 percent of the vote and value of its 
shares). In addition, a person may be a connected person if, 
based on all the relevant facts and circumstances, one has 
control of the other, or both are under the control of the same 
persons. In no event is a dividend paid by a RIC or a REIT 
eligible for this further reduction in tax rate.
            Income from employment
    Qualified wages for personal services performed within the 
United States generally are not subject to U.S. income tax if 
paid by an employer to a qualified resident of Taiwan who is 
either not a U.S. resident or is employed as a member of the 
regular component of a ship or aircraft operated in 
international traffic. The definition of qualified wages 
follows the definition in Model Treaty Article 14 (Income from 
Employment) to include amounts paid by or on behalf of a non-
U.S. person (and not borne by a U.S. permanent establishment) 
in the form of wages, salaries, or similar remunerations with 
respect to personal services performed in the United States. 
Directors' fees, income derived as a student or trainee, 
pensions, or amounts paid with respect to employment with the 
United States, any State, or any U.S. possession, or other 
amounts specified in regulations or guidance are not included 
within the scope of qualified wages.
            Income from services as an entertainer or athlete
    Income derived by a qualified resident of Taiwan for 
services performed as an entertainer or athlete in the United 
States generally is subject to income tax in the United States 
but may avoid U.S. taxation if gross receipts from such 
services do not exceed in total (including amounts received as 
reimbursement of expenses) $30,000. If total receipts from the 
performance of services as an entertainer or athlete exceeds 
$30,000, then the entire amount is subject to taxation in the 
United States. Income from such services accruing to a person 
other than the entertainer or athlete performing such services 
also may qualify for the exemption from U.S. taxation, but only 
if the person receiving the income is contractually authorized 
to designate another person or persons to provide the services.
    This provision is intended to be consistent with the rules 
in Model Treaty Article 16 (Entertainers and Sportsmen), which 
generally provides that income derived from services performed 
by entertainers and athletes resident in one treaty partner 
jurisdiction may be subject to tax based on the source of 
income rather than the residence of the performer or athlete, 
notwithstanding the provisions of Model Treaty Article 14 
(Income from Employment).

Income effectively connected with a U.S. permanent establishment

    Income of a qualified resident of Taiwan that is 
effectively connected with a U.S. permanent establishment is 
subject to tax on a net basis (under section 1 for noncorporate 
persons and section 11 for corporations). In addition, such ECI 
continues to be subject to the alternative minimum tax and 
BEAT, if applicable. In determining taxable income for these 
purposes, gross income includes only gross income which is 
effectively connected with the permanent establishment.
    Various rules of special application are provided for 
determining whether rules regarding ECI are modified. First, 
under FIRPTA, to ensure that the ultimate substantive tax 
treatment of FIRPTA income is unchanged, references to ``trade 
or business within the United States'' are changed to refer to 
carrying on a trade or business through a U.S. permanent 
establishment. The branch profits tax applicable to ECI 
(including the branch profits tax on interest) is reduced to 10 
percent, thus matching the reduced rate for dividends and 
interest that would otherwise apply. The provision adopts the 
anti-abuse standards of section 894(c) to deny benefits when 
payments are made through hybrid entities.
    In addition, wages, salaries, or similar remunerations with 
respect to employment as well as directors' fees, income from 
services as an entertainer or athlete, income derived as a 
student or trainee, pensions, and amounts paid with respect to 
employment with the United States are outside the scope of 
income considered to be effectively connected with a permanent 
establishment. This limitation is in accordance with language 
in Model Treaty Article 7 (Business Profits), paragraph 4, 
which provides that ``[w]here profits include items of income 
that are dealt with separately in other Articles of this 
Convention, then the provisions of those Articles shall not be 
affected by the provisions of this Article.''
            Definition of U.S. permanent establishment
    A U.S. permanent establishment is a fixed place of business 
through which a qualified resident of Taiwan conducts an active 
trade or business within the United States. A U.S. permanent 
establishment need not be subject to corporate tax in Taiwan to 
qualify. The fixed place may include a place from which a trade 
or business is managed, as well as an office, factory, 
workshop, branch, site in which minerals are extracted, or 
other sites. Such a fixed place generally does not include 
sites maintained for a limited purpose such as storage, 
display, or auxiliary or preparatory work; further, such a 
fixed place generally does not include a fixed place of 
business of an independent agent even if such agent habitually 
contracts on behalf of the foreign entity. Following Model 
Treaty Article 5 (Permanent Establishment), special rules on 
the extent to which a temporary project may constitute a fixed 
place of business are provided.

Qualified resident of Taiwan

    Following Model Treaty Article 4 (Resident), the provision 
defines residence for both individuals and entities. In 
general, a ``qualified resident of Taiwan'' is entitled to the 
benefits of the new provision. The term generally includes any 
person that is not a U.S. person who is liable for tax in 
Taiwan and establishes domicile, residence, management or 
control, or place of incorporation in Taiwan. Rules specific to 
individuals, as well as specific limitations on eligibility of 
corporations, are provided.
            Individuals
    In general, the Code provides that the residence of an 
individual other than a U.S. citizen be determined by 
application of section 7701(b). If such a person also has met 
the foregoing criteria for status as a qualified resident of 
Taiwan, such individual may be a dual resident, whose residence 
must be resolved after further inquiry.
            Resolving residence of a dual resident
    The residence of a dual resident is resolved by applying a 
hierarchy of three tests based on the individual's permanent 
home, center of vital interests, or habitual abode. The first 
inquiry is where the individual has a permanent home. If the 
individual has a permanent home in Taiwan but not the United 
States, the permanent home is determinative of residence. If a 
person has permanent homes in both jurisdictions, the second 
inquiry is whether the individual has a center of vital 
interests in Taiwan. If the person has a permanent home in both 
jurisdictions and the center of vital interests cannot be 
determined, or has no permanent home in either jurisdiction, 
then the individual's residence is based on the individual's 
habitual abode. If an individual's residence cannot be 
determined by habitual abode, that person is not a qualified 
resident of Taiwan for purposes of claiming benefits under this 
provision.
            Rules for determining residence of an entity
    Entities taxed as corporations in Taiwan are treated as 
qualified residents of Taiwan if they meet an ownership and 
income test, a publicly traded in Taiwan test, or a qualified 
subsidiary test. In addition, qualified items of income are 
treated as income of a qualified resident of Taiwan.
            Ownership and income thresholds for non-publicly traded 
                    entities
    The ownership and income tests require that at least 50 
percent by vote and value of the entity is owned (directly or 
indirectly) by qualified residents of Taiwan and that less than 
50 percent of gross income of the entity (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 in the form of 
payments deductible for purposes of income taxes imposed by 
Taiwan to persons who are neither qualified residents of Taiwan 
nor certain U.S. persons whose connection to the United States 
meets comparable tests, as determined by the Secretary. 
Indirect ownership for purposes of the ownership threshold 
requires that all intermediate owners are qualifying 
intermediate owners; that is, a qualified resident of Taiwan or 
resident of a foreign country with which the United States has 
a comprehensive tax treaty for the relief of double taxation, 
provided that the foreign country is not a country of concern 
within the meaning of that term as included in the CHIPS Act of 
2022.\74\
---------------------------------------------------------------------------
    \74\Section 103(a)(4) of the CHIPS Act of 2022.
---------------------------------------------------------------------------
    Certain deductible payments are not included in gross 
income for purposes of the income test. Such deductible 
payments do not include arm's-length payments by an entity in 
the ordinary course of an active trade or business for services 
or tangible property and do not include certain intragroup 
transactions within a tested group. A tested group is defined 
as a group of two or more corporations that participate in a 
group for tax consolidation, fiscal unity or other plan that 
requires the corporations to share profits and losses, or that 
share losses through group relief or other loss sharing 
regimes.
            Publicly traded test
    Alternatively, an entity may establish itself as a 
qualified resident of Taiwan under the publicly traded test. An 
entity is considered to be publicly traded in Taiwan if its 
principal class of shares (and any disproportionate class of 
shares) is primarily and regularly traded on an established 
securities market in Taiwan. If such shares of an entity are 
not primarily traded in Taiwan but the entity has its primary 
place of management and control in Taiwan and its principal 
class of shares (and any disproportionate class of shares) is 
regularly traded there on an established securities market, the 
entity meets the publicly traded test.
            Qualified subsidiary test
    An entity that does not meet the above ownership and income 
test or publicly traded test may nonetheless be eligible for 
the benefits described herein if that entity meets the 
qualified subsidiary test. Entities that meet the income 
requirements of the ownership and income tests may qualify if 
they are owned at least 50 percent by five or fewer 
corporations that themselves satisfy the publicly traded test 
or are U.S. persons, the shares of which are primarily and 
regularly traded in the United States on an established 
securities market. For this purpose, the indirect ownership of 
the qualified subsidiary is met only if all intermediate owners 
are themselves qualifying intermediate owners, which, for 
purposes of the qualified subsidiary test only, may include 
U.S. persons that satisfy tests comparable to the test for a 
qualified resident of Taiwan, as determined by the Secretary. 
In addition, qualifying intermediate owners also include a 
qualified resident of Taiwan or a resident of a foreign country 
with which the United States has a comprehensive tax treaty for 
the relief of double taxation and is not a country of concern.
            Active trade or business test
    Even if an entity is not otherwise a qualified resident of 
Taiwan, a qualified item of income from the United States that 
is derived by a person subject to income tax under Taiwan law 
(and that is not a U.S. person) shall be treated as income of a 
qualified resident of Taiwan. A qualified item of income 
includes any item of income which emanates from, or is 
incidental to, the conduct of an active trade or business in 
Taiwan and, if such person derives an item of income from a 
trade or business activity conducted in the United States, or 
derives an item of income arising in the United States from a 
connected person, the trade or business activity in Taiwan to 
which the item relates is required to be substantial in 
relation to the same or complementary trade or business 
activity in the United States. The trade or business activity 
in the United States may be carried on by such person or any 
connected person. The active trade or business test is not 
available for 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.

Reciprocity requirements

    Before any of the foregoing rules are applicable in any 
taxable period, the Secretary must determine that certain 
reciprocity requirements are met, ensuring that U.S. persons 
subject to income tax in Taiwan are afforded reciprocal 
benefits. Reciprocity may be determined in any appropriate 
manner.

Regulations

    The provision grants the Secretary authority to promulgate 
regulations on a variety of enumerated issues. These issues 
include regulations or guidance for determining what 
constitutes a U.S. permanent establishment of a qualified 
resident of Taiwan and income that is effectively connected to 
such a permanent establishment; 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; 
requirements for record keeping and reporting; rules to assist 
withholding agents or employers in determining whether a 
foreign person is a qualified resident of Taiwan or whether 
reporting is required for a payment; the application of the 
provision to ownership thresholds attributable to stock held by 
predecessor owners; determining what amounts are to be treated 
as qualified wages; defining established securities markets for 
the limitation on benefits provisions; the application of the 
legislation to qualified residents of Taiwan that are partners 
of a partnership or beneficiaries of an estate or trust; 
determining ownership interests held by residents of foreign 
countries of concern; determining what items are to be treated 
as qualified items of income under the active trade or business 
provisions of the limitation of benefits to prevent abuse of 
the purposes of this section; and determining the starting and 
ending dates for periods with respect to the reciprocity 
requirements. To the extent practical, the regulations shall be 
consistent with the relevant Model Treaty provisions.

 B. United States-Taiwan Tax Agreement Authorization Act (Title II of 
                               the Bill)


                              PRESENT LAW

    The applicable present law is described above under section 
A of this Part.

                        EXPLANATION OF PROVISION

    The United States-Taiwan Tax Agreement Authorization Act 
authorizes the President to negotiate and enter into one or 
more non-self-executing tax agreements (in each case, the 
``Agreement'') to provide for bilateral tax relief with Taiwan 
beyond that provided for in section 894A (as added by United 
States-Taiwan Expedited Double-Tax Relief Act) and prescribes 
the process for approving and implementing such an agreement, 
as described below.
            Authorization to negotiate and enter into Agreement
    After a determination by the Secretary of the Treasury that 
Taiwan has provided benefits to U.S. persons that are 
reciprocal to the benefits provided to qualified residents of 
Taiwan under section 894A, the President is authorized to 
negotiate and enter into the Agreement. Any provisions in the 
Agreement must conform with provisions customarily contained in 
U.S. bilateral income tax conventions, as exemplified by the 
2016 U.S. Model Income Tax Convention, and the Agreement may 
not include elements outside the scope of the 2016 U.S. Model 
Income Tax Convention.
    Notwithstanding such conformity, the Agreement may 
incorporate and restate provisions of any agreement, as well as 
existing U.S. law, addressing double taxation for residents of 
the United States and Taiwan. The Agreement shall include the 
following statement: ``The Agreement is entered into pursuant 
to the United States-Taiwan Tax Agreement Authorization Act.'' 
The Agreement is required to include a provision conditioning 
entry into force upon enactment of approval legislation and 
implementing legislation (as described below) and confirmation 
by the Secretary of the Treasury that the relevant authority in 
Taiwan has approved and taken appropriate steps required to 
implement the Agreement.
            Consultations with Congress
    The provision requires the President to provide written 
notification to certain appropriate congressional committees of 
the commencement of negotiations with Taiwan at least 15 
calendar days prior to commencing negotiations. In addition, no 
later than 90 days after commencing negotiations and every 180 
days thereafter until the President enters into the Agreement, 
the President is required to provide a briefing to the 
appropriate congressional committees on the status of the 
negotiations, including a description of elements under 
negotiation.
    The appropriate congressional committees include the 
Committee on Foreign Relations and the Committee on Finance of 
the Senate, as well as the Committee on Ways and Means of the 
House of Representatives.
    During the course of negotiations with respect to the 
Agreement, the Secretary of the Treasury, in coordination with 
the Secretary of State, upon request, is required to meet with 
the chairman or ranking member of any of the appropriate 
congressional committees regarding negotiating objectives and 
the status of negotiations in progress. In addition, the 
Secretaries must closely and timely consult with the 
appropriate congressional committees, as well as keep such 
committees fully apprised of the negotiations. Such 
consultations are required to include the nature of the 
contemplated Agreement, how and to what extent the contemplated 
Agreement is consistent with the scope of the 2016 U.S. Model 
Income Tax Convention, and the implementation of the 
contemplated Agreement, including (i) the general effect of the 
contemplated Agreement on existing laws, (ii) proposed changes 
to any existing laws to implement the contemplated Agreement, 
and (iii) proposed administrative actions to implement the 
contemplated Agreement.
            Approval and implementation of Agreement
    The Agreement may not enter into force unless:
           the President publishes the text of the 
        contemplated Agreement on a publicly available website 
        of the Department of the Treasury at least 60 days 
        before the day on which the President enters into the 
        Agreement, and
           there is enacted into law, with respect to 
        the Agreement, approval legislation and implementing 
        legislation.
    The President may provide for the Agreement to enter into 
force upon enactment of approval legislation and implementing 
legislation and confirmation by the Secretary of the Treasury 
that the relevant authority in Taiwan has approved and taken 
appropriate steps required to implement the Agreement. Approval 
legislation means legislation that approves the Agreement and 
implementing legislation means legislation that makes any 
changes to the Code necessary to implement the Agreement.
            Submission of Agreement
    The provision requires that no later than 270 days after 
the President enters into the Agreement, the President or the 
President's designee shall submit to Congress the final text of 
the Agreement and a technical explanation of the Agreement. In 
addition, no later than 270 days after the President enters 
into the Agreement, the Secretary of the Treasury shall submit 
to Congress a description of those changes to existing laws 
that the President considers would be required in order to 
ensure that the United States acts in a manner consistent with 
the Agreement, and a statement of anticipated administrative 
action proposed to implement the Agreement.
            Consideration of approval legislation and implementing 
                    legislation
    The provision requires that the approval legislation 
relating to the Agreement include the following text, 
``Congress approves the Agreement submitted to Congress 
pursuant to section 206 of the United States-Taiwan Tax 
Agreement Authorization Act on__'' with the blank space being 
filled with the appropriate date. The approval legislation is 
required to be referred to the Committee on Foreign Relations 
in the Senate and to the Committee on Ways and Means in the 
House of Representatives.
    The implementing legislation is required to be referred to 
the Committee on Finance in the Senate and the Committee on 
Ways and Means in the House of Representatives.
            Relationship of Agreement to Internal Revenue Code of 1986
    The provision states that the provisions of the Agreement 
or approval legislation, or the application of any such 
provision, that are inconsistent with the Code do not have 
effect. Nothing in the provision is intended to be construed to 
amend or modify any law of the United States or to limit any 
authority conferred under any law of the United States, unless 
specifically provided for in the provision.
            Authorization of subsequent tax agreements relative to 
                    Taiwan
    After enactment of approval legislation and implementing 
legislation, the tax agreement that is authorized by this 
provision is required to be treated as including any tax 
agreement relative to Taiwan which supplements or supersedes 
the Agreement to which such approval legislation and 
implementing legislation relates. The term ``Agreement'' shall 
be treated as including such tax agreement. The provision is 
required to be applied separately with respect to each such tax 
agreement.
            Congressional findings and statement of policy
    The provision makes the following findings: the United 
States addresses issues with respect to double taxation with 
foreign countries by entering into bilateral income tax 
conventions (known as tax treaties) with such countries 
negotiated by the President pursuant to Article II of the 
Constitution, and subject to the advice and consent of the 
Senate; the United States has entered into more than sixty such 
tax treaties, which facilitate economic activity, strengthen 
bilateral cooperation, and benefit U.S. workers, businesses, 
and other U.S. taxpayers; and because of Taiwan's unique 
status, the United States is unable to enter into an Article II 
tax treaty with Taiwan, necessitating an alternative means to 
address issues with respect to double taxation.
    The provision states that it is the policy of the United 
States to provide for additional bilateral tax relief with 
respect to Taiwan, beyond that provided for in section 894A (as 
added by the United States-Taiwan Expedited Double-Tax Relief 
Act), only after entry into force of an Agreement and only in a 
manner consistent with such Agreement. It further states that 
it is the policy of the United States to continue to provide 
for relief from double taxation and other related matters 
through entering into bilateral income tax conventions, 
negotiated by the President pursuant to Article II of the 
Constitution, and subject to the advice and consent of the 
Senate.

                             EFFECTIVE DATE

    The provisions of Title I are effective on date of 
enactment, subject to satisfaction of the contingent 
reciprocity standards being met.
    Title II is effective upon date of enactment.

                       III. VOTE OF THE COMMITTEE

    Pursuant to clause 3(b) of rule XIII of the Rules of the 
House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 5988, the ``United States-Taiwan 
Expedited Double-Tax Relief Act,'' on November 30, 2023.
    The bill, H.R. 5988, the ``United States-Taiwan Expedited 
Double-Tax Relief Act,'' as amended, was ordered favorably 
reported to the House of Representatives by a recorded vote 
(with a quorum being present) of 40 ayes and 0 nays.

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Smith (MO).................        X   ........  .........  Mr. Neal.........        X   ........  .........
Mr. Buchanan...................        X   ........  .........  Mr. Doggett......        X   ........  .........
Mr. Smith (NE).................        X   ........  .........  Mr. Thompson.....        X   ........  .........
Mr. Kelly......................  ........  ........  .........  Mr. Larson.......        X   ........  .........
Mr. Schweikert.................        X   ........  .........  Mr. Blumenauer...        X   ........  .........
Mr. LaHood.....................        X   ........  .........  Mr. Pascrell.....        X   ........  .........
Dr. Wenstrup...................        X   ........  .........  Mr. Davis........        X   ........  .........
Mr. Arrington..................        X   ........  .........  Ms. Sanchez......        X   ........  .........
Dr. Ferguson...................        X   ........  .........  Mr. Higgins......        X   ........  .........
Mr. Estes......................        X   ........  .........  Ms. Sewell.......        X   ........  .........
Mr. Smucker....................        X   ........  .........  Ms. DelBene......        X   ........  .........
Mr. Hern.......................        X   ........  .........  Ms. Chu..........        X   ........  .........
Ms. Miller.....................        X   ........  .........  Ms. Moore........        X   ........  .........
Dr. Murphy.....................        X   ........  .........  Mr. Kildee.......        X   ........  .........
Mr. Kustoff....................        X   ........  .........  Mr. Beyer........        X   ........  .........
Mr. Fitzpatrick................        X   ........  .........  Mr. Evans........  ........  ........  .........
Mr. Steube.....................  ........  ........  .........  Mr. Schneider....        X   ........  .........
Ms. Tenney.....................        X   ........  .........  Mr. Panetta......        X   ........  .........
Mrs. Fischbach.................        X
Mr. Moore......................        X
Mrs. Steel.....................        X
Ms. Van Duyne..................        X
Mr. Feenstra...................        X
Ms. Malliotakis................        X
Mr. Carey......................        X
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, a cost estimate provided by the 
Congressional Budget Office pursuant to section 402 of the 
Congressional Budget Act of 1974 was not made available to the 
Committee in time for the filing of this report. The Chairman 
shall cause such estimate to be printed in the Congressional 
Record upon its receipt by the Committee.
    Consistent with estimating conventions regarding contingent 
legislation, the staff of the Joint Committee on Taxation 
estimates the bill to have no effect on Federal fiscal year 
budget receipts for the period 2024 through 2033.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives, the Committee made findings and 
recommendations that are reflected in this report.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill does not authorize funding, so no statement of general 
performance goals and objectives is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

  D. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                       E. Tax Complexity Analysis

    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined the following with regard to the 
complexity analysis:
    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (``IRS Reform Act'') requires the 
staff of the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Treasury Department) to 
provide a tax complexity analysis. The complexity analysis is 
required for all legislation reported by the Senate Committee 
on Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses. The staff of the Joint Committee on Taxation has 
determined that there are no provisions that are of widespread 
applicability to individuals or small businesses.

                   F. Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italics and existing law in which no change is 
proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986




           *       *       *       *       *       *       *
Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


 Subchapter N--TAX BASED ON INCOME FROM SOURCES WITHIN OR WITHOUT THE 
UNITED STATES

           *       *       *       *       *       *       *


PART II--NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

           *       *       *       *       *       *       *



                  Subpart D--MISCELLANEOUS PROVISIONS


     * * * * * * *
Sec. 894A. Special rules for qualified residents of Taiwan. S6602
     * * * * * * *

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.S6602

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    CHAPTER 3--WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN 
CORPORATIONS

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       Subchapter A--NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

     * * * * * * *
Sec. 1447. Withholding for qualified residents of Taiwan. S6602
     * * * * * * *

SEC. 1447. WITHHOLDING FOR QUALIFIED RESIDENTS OF TAIWAN.

  For reduced rates of withholding for certain residents of 
Taiwan, see section 894A.S6602

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