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Chip companies that get U.S. subsidies will have to relinquish significant excess profits

TSMC Semiconductor

A new document issued by the U.S. Commerce Department has revealed that any companies that receive part of the CHIPS semiconductor subsidy from the U.S. government will have to give up any significant excess profits that they accrue. The Biden administration has set up a $52 billion subsidy fund to encourage chip manufacturing in the United States to boost the country’s resiliency but if companies make much more than they expected they’ll have to pay money back to the government.

Explaining the rules about having to pay forward excess profits, a newly issued document says:

“Recipients receiving more than $150 million in CHIPS Direct Funding will be required to share with the U.S. government a portion of any cash flows or returns that exceed the applicant’s projections (above an agreed-upon threshold specified in the award). The Department expects that upside sharing will only be material in instances where the project significantly exceeds its projected cash flows or returns, and will not exceed 75% of the recipient’s direct funding award. Because successful projects will differ considerably in their key attributes, upside sharing arrangements may vary by project, and, in exceptional circumstances, may be waived.”

As expected, the Democratic and Republican politicians are divided on the profit-sharing provision in the text. The Democrats believe it's fair that profits shared from doing exceedingly well are fair recompense for receiving subsidies in the first place. The Republicans have said that the provision exceeds the Commerce Department’s authority granted by Congress.

Ultimately, if the provision allows the government to claw back some of the money it spent in the first place then it will be able to better fund the services it wants to provide and could potentially lead to lower taxes on individuals and businesses.

Source: NIST (PDF) via Reuters

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