US embassy cable - 05TAIPEI3623

C O N F I D E N T I A L TAIPEI 003623 
 
SIPDIS 
 
DEPT PASS TO AIT/W AND USTR 
DEPT FOR EAP/TC, EAP/EP AND EB/IFD/OIA 
TREASURY FOR OASIA ZELIKOW,WISNER AND OCC AMCMAHON 
TREASURY ALSO PASS TO FEDERAL RESERVE BOARD OF GOVERNORS, 
SAN FRANCISO FRB AND NEW YORK FRB 
 
E.O. 12958: DECL: 08/28/2020 
TAGS: ECON, EINV, PINR, PREL, TW, Foreign Policy, Finance 
SUBJECT: TAIWAN MINIMUM TAX: FICTION TRUER THAN FACT 
 
REF: TAIPEI 3390 
 
Classified By: AIT DIRECTOR DOUGLAS PAAL, REASON 1.5 B/D 
 
1.  (C) Summary:  Corning, the largest U.S. investor in 
Taiwan, privately denied press reports that it would shift 
planned investment to South Korea over pending tax changes. 
Taiwan's Executive Yuan (EY) and Legislative Yuan (LY) DPP 
caucus held on August 29 reached a compromise on the tax bill 
that should satisfy Corning's main concern.  However, the 
bill still must be reviewed by the entire LY and may be 
modified again.  End summary. 
 
2.  (C) AIT FCS spoke with Corning Display Technologies 
Taiwan (Corning) CFO Joanne Zhang regarding an August 29 
report in the "Commercial Times" that Corning might relocate 
its third glass furnace to South Korea if its investments 
were not exempted from a proposed alternative minimum tax 
(AMT).  Zhang said the story was based only on the 
newspaper's own speculation, not statements from Corning. 
Zhang did not say the newspapers speculation was incorrect, 
but only that no one at Corning had said it.  Corning has 
indicated (reftel) that it considered the original bill a 
retraction of incentives Taiwan used to attract Corning to 
invest in Taiwan. 
 
3.  (C) The August 29 coordination meeting between the EY and 
the LY DPP caucus, presided over by Vice Premier Wu Rong-I, 
reached a compromise on the contents of the bill.  The 
revised bill preserves Corning's most important priorities: 
the five-year tax break and four-year phase-in of the AMT. 
However, the EY caved to DPP pressure on the less critical 
issue of starting the tax rate for businesses at 10%. 
 
4.  (C) The compromise waives the tax for up to four years on 
high-tech investment projects approved prior to 
implementation of the tax.  These projects will continue to 
enjoy the current five-year tax holiday.  Zhang indicated to 
AIT that this arrangement would satisfy Corning's main 
concern. 
 
5.  (C) Comment: While the EY has made good on reftel promise 
to deliver a tax bill that resolves the issues of Corning and 
other foreign investors in similar positions, the bill still 
must be reviewed by the entire LY and is likely to be the 
subject of heated debate there.  Opposition PFP LY members 
have told AIT they view the government budget deficit as the 
most pressing economic problem that Taiwan faces, and may 
seek to remove tax holidays from the bill.  However, as the 
false, but un-refuted, Commercial Times article about Corning 
pointed out, removing tax incentives for high-tech investment 
will cause many investors to think harder about investing in 
Taiwan.  End comment. 
KEEGAN