US to give chipmakers a 25% tax credit on new factories • The Register

According to a document released this week by the US Department of Commerce, leading foundry operators will benefit from a 25 percent investment tax credit (ITC) on domestic fab projects.

The document [PDF] sheds new light on the Department’s plans to split up the more than $50 billion CHIPS Act fund approved this year by Congress on financing domestic chip production.

The tax credits come with $39 billion in grants, collaborative agreements, loans and loan guarantees available to companies working to advance the security interests of U.S. semiconductors and supply chains.

The Commerce Department appears to have mixed feelings about the state of the US in the global semiconductor space. The document argues that the US remains the world leader in chip design and native design and automation tools, but also notes that the US accounts for only 10 percent of global chip capacity and only 3 percent of global packaging, assembly and test services, indicating areas where America has fallen behind in terms of domestic production.

“The United States no longer produces the most advanced semiconductors in the world and has lost the ability to manufacture key supply chain inputs such as lithography, tooling, substrates and some specialty chemicals,” the document said.

The department adds that the People’s Republic of China’s recent advances in accelerating its own domestic chip manufacturing capacity have only served to exacerbate the risk to US supply chains.

With that in mind, the Department of Commerce is not picky about which companies qualify for funding. Any company, domestic or foreign, that is taking steps to further the goals of the Commercial Department, other than “affected companies”. These goals include accelerating the production of top-of-the-line and legacy chips in the United States, research and development of next-generation semiconductor applications, and efforts to develop an adequate workforce to fuel this expansion.

While foreign manufacturers are not excluded from subsidies, the Department of Commerce emphasizes that these funds must go to domestic infrastructure and cannot be used abroad.

Financing plans are made

In late July, the US Senate and House of Representatives tuned a day apart to approve the $280 billion CHIPS and Science Act. Of this, approximately $50 billion was used to support the construction of semiconductor manufacturing facilities on US soil. The bill also included provisions for an additional $24 billion in tax credits for companies engaged in domestic chip manufacturing.

These tax credits, allocated under Section 107 of the CHIPs Act, are administered by the Internal Revenue Service and cover all projects that begin construction between January 1, 2023 and December 31, 2026.

“The Department expects that the ITC will serve as an important tool to close the cost gap between investments in the United States and other countries,” the Commerce Department document said.

While the tax credits appear to target companies involved in creating new domestic factories, the Commerce Department casts a wider net when it comes to the $39 billion in subsidies.

In addition to funding both foreign and domestic fab projects in the US, fabless chipmakers also appear to be eligible for funding.

“Although much of the CHIPs program focuses on building factories, the ministry also funds projects that help fabless design firms thrive. Projects provide better design tools and intellectual property, more flexible access to fab resources, and greater portability of designs between fabs are encouraged,” the department wrote.

However, the Commerce Department expects the bulk of the funding — about $28 billion — will go to large-scale, state-of-the-art logic and memory manufacturing ventures. Meanwhile, approximately $10 billion will go toward expanding the capacity of current and legacy process technologies needed by automotive, communications, medical, and military applications.

The acceptance of these funds is not without reservations. Among the most notable is a provision that bans recipients of CHIP funds from building factories in China or other “countries of concern” for a 10-year period.

Recipients are also encouraged to make investments that will help build a pipeline to expand the semiconductor workforce.

We’ve already seen several chipmakers, including Micron and Intel, announce major investments in STEM education in K-12 and college environments in and around planned foundry expansions.

And, as previously reported, recipients are forbidden from using public funds to buy back shares or pay dividends to shareholders.

The Commerce Department will reportedly begin soliciting applications for funding within six months of the bill’s passage, which we estimate is next February.

The process will include a preliminary stage where applicants can receive feedback.

The US allocates $11 billion to research and development of semiconductors

The remaining $11 billion will go towards establishing two new organizations under the National Institute of Standards and Technology (NIST).

The first of these organizations includes the National Semiconductor Technology Center (NSTC), which will conduct research and prototyping of advanced chip technologies.

In addition to advancing semiconductor design, scaling process nodes, and developing novel tools and materials for chip production, the NSTC will be responsible for human resource development and employee training.

“There is a serious shortage of workers who are trained and ready to take on new roles in specialty construction, factory operations and semiconductor design,” the department wrote.

The second organization, dubbed the National Advanced Packaging Manufacturing Program (NAPMP), as the name suggests, will focus on packaging and manufacturing.

“The Department intends to form a network of units to create a robust domestic advanced packaging capacity, including substrate production, heterogeneous integration and the ability to work with and integrate various new material systems,” the Department of Commerce wrote.

NSTC and NAPMP are supported by the establishment of three manufacturing institutes for the purpose of research and development of advanced semiconductor technologies. ®

https://www.theregister.com/2022/09/06/chips_commerce_funding_tax_credit/ US to give chipmakers a 25% tax credit on new factories • The Register

Laura Coffey

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