Feds propose new natsec, tax rules for chip subsidies

BY: BRENDAN BORDELON | 03/21/2023 02:59 PM EDT

Washington continues to lay the groundwork for doling out tens of billions of dollars in subsidies under the CHIPS and Science Act. On Tuesday, the Commerce and Treasury departments released notices of proposed rulemaking that would set new national security and tax rules for microchip payouts.

Mind the guardrails: The Commerce Department’s proposal provides the chip industry with more details on how the agency is interpreting the “national security guardrails” Congress built when it appropriated $52 billion for domestic chip manufacturing and research. That includes new details on the restrictions Commerce plans to impose on companies that maintain chip facilities in China or other “countries of concern.”

Any chipmaker that takes money from Washington would be prevented for 10 years from expanding the capacity of advanced chipmaking facilities in China by more than 5 percent. Chinese-based factories making older chips would get a bit more wiggle room — companies who take federal dollars for domestic chip projects will be able to expand those “legacy” facilities by up to ten percent of capacity.

The proposed rules would also officially classify some advanced chips as critical to national security and align the agency’s subsidy restrictions with the tough chip export controls imposed by the Commerce Department last October. They would also detail new restrictions on joint research and technology licensing efforts between chip companies and “foreign entities of concern.”

Credit where it’s due: Tuesday’s proposal from the Treasury Department and Internal Revenue Service gives more details to companies hoping to receive the CHIPS and Science Act’s 25 percent tax credit for investments in new, U.S.-based chipmaking facilities. The guidance lays out which types of companies and projects would be eligible, and says chipmakers would be allowed to receive the credit as an elective payment. The tax agencies said they plan to provide credits for chip facilities that began operations at the start of this year.

In a Tuesday statement, Senate Finance Chair Ron Wyden (D-Ore.) praised the Commerce and Treasury departments for laying out the rules of the road. The senator added that a “race” is now on “to lock in the huge investments that come with chip manufacturing.”