TAIWAN MINIMUM TAX: FICTION TRUER THAN FACT

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