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US wants to give global chipmakers a 25% tax credit on new fabs

Plus $39 billion in subsidies for 'domestic' effort that will welcome foreign semiconductor players

Leading foundry operators stand to benefit from a 25 percent investment tax credit (ITC) on domestic fab projects, according to a document published by the US Department of Commerce this week.

The document [PDF] sheds new light on the department's plans for divvying up the more than $50 billion CHIPS Act fund approved this year by Congress to fund domestic chip production.

The tax credits accompany $39 billion in grants, cooperative agreements, loans, and loan guarantees available to companies working to advance US semiconductor and supply chain security interests.

The Commerce Department appears to have mixed sentiments about the state of the US in the global semiconductor sphere. The document argues the US remains the world leader in chip design and native design and automation tools but also notes the US is responsible for only 10 percent of global chip capacity and just 3 percent of global packaging, assembling, and testing services, pointing to areas where America has fallen behind when it comes to domestic production.

“The United States no longer produces the world's most advanced semiconductors and has lost the ability to produce key supply chain inputs such as lithography, tools, substrates, and some specialty chemicals,” the document reads.

The department adds that recent advancements made by the People’s Republic of China to accelerate their own domestic chip manufacturing capacity has only served to exacerbate the risk to US supply chains.

With that said, the Commerce Department isn't being picky about which companies are eligible for funding. Any company, foreign or domestic, that takes steps to advance the commerce departments goals, with the exception of “entities of concern.” Those goals in include accelerating leading-edge and legacy chip production in the US, research and development into next-generation semiconductor applications, and efforts to develop an adequate workforce to fuel this expansion.

While foreign manufacturers aren't excluded from receiving funding, the Commerce Department emphasizes that those funds must go towards domestic infrastructure and can't be used abroad.

Funding plans materialize

In late July, the US Senate and House voted a day of each other to approve the $280 billion CHIPS and Science Act. Of that roughly $50 billion was directed 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 production.

These tax credits, allocated under Section Section 107 of the CHIPs bill, will be administered by the Internal Revenue Service and cover any projects that start construction between Jan. 1, 2023, and Dec. 31, 2026.

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

While the tax credits appear to be aimed at companies involved in creation of new domestic fabs, the Commerce Department is casting 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, It appears fabless chipmakers may be eligible for funding as well.

“Although much of the CHIPs program is focused on building fabs, the Department also encourages projects that enable fabless design firms to succeed. Projects provide better design tools and IP, more flexible access to to fab resources, and better portability of designs between fabs are encouraged,” the department wrote.

However, the Commerce Department expects majority of funding — roughly $28 billion — will be directed toward large scale, leading edge logic and memory manufacturing endeavors. Meanwhile, roughly $10 billion will be directed toward expanding capacity of current and legacy process tech, required by the automobile, communications, and medical industries, as well as for military applications.

Accepting these funds isn’t without caveats. One of the more notable includes a provision that prohibits recipients of CHIPs funding from building fabs in China or other “countries of concern” for a period of 10 years.

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

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

And, as previously reported, recipients are prohibited from using public funds for stock buybacks or dividend payments to shareholders.

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

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

US dedicates $11 billion to semiconductor R&D

The remaining $11 billion of funds 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 conductor research and prototyping of advanced chip technologies.

In addition to advancing semiconductor design, scaling process nodes, and developing novel tools and materials for chips production, the NSTC will be responsible for workforce development and training of workers.

“There is a severe shortage of workers who are trained and ready to fill new roles in specialized construction, fab operations, and semiconductor design,” The department wrote.

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

“The Department envisions forming a network of entities to create a robust domestic advanced packaging capacity, including substrate production, heterogeneous integration, and the ability to work with and incorporate diverse new material systems,” the Commerce Department wrote.

The NSTC and NAPMP will be supported by the creation of three manufacturing institutes for the purposes of research and development into advanced semiconductor technologies. ®

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