Public Comment Period Opens
The U.S. Departments of Commerce and Treasury today published separate but aligned rules in the Federal Register to guide the implementation of the CHIPS and Science Act to ensure that adversaries of the U.S. and its allies do not use technology and innovation funded by the act for deleterious purposes. The 60-day public comment period on both Notices of Proposed Rulemaking (NPRMs), ending May 22, 2023, opened today.
The Commerce NPRM contains guidance on national security guardrails tied to CHIPS funding while the Treasury NPRM provides additional detail on the Advanced Manufacturing Investment Credit (ITC). Both topics were originally addressed as part of the CHIPS and Science Act.
National Security Guardrails
The Commerce Department NPRM on National Security Guardrails builds on the first CHIPS Notice of Funding Opportunity (NOFO) for Commercial Fabrication Facilities. As SEMI noted in our summary and analysis of the NOFO earlier this month, the Commerce Department intends to harmonize the national security guardrails with existing export control policies, prevent CHIPS funding from passing to foreign entities of concern, and establish agreements with funded companies limiting their expansion into countries of concern.
The NPRM provides additional detail on the implementation of these guardrails by defining terms used in the legislation, identifying the types of transactions prohibited under the law and describing the process for notifying the Secretary of Commerce about these transactions.
The CHIPS and Science Act also included a Technology Clawback section designed to prohibit funding recipients from pursuing joint research or technology licensing with foreign entities of concern that raise national security concerns.
General – Subpart B of the Commerce Department NPRM outlines specific provisions that will be used in any award agreement, essentially restating the language of the Expansion and Technology Clawback sections of the CHIPS and Science Act. It also adds the requirement that award recipients maintain records detailing significant transactions “in a manner consistent with the recordkeeping practices used in their ordinary course of business. This requirement applies to the 10-year duration of the required agreement and for a period of seven years after any significant transaction.”
Notification and Review – Subpart C of the Commerce Department NPRM details the procedure for notifying the Secretary of Commerce about a significant transaction and the process by which the Secretary reviews such transactions to determine whether they violate prohibitions outlined in statute.
Other Provisions – Lastly, subpart D directs the Secretary to assess which technologies should be covered by the definition of “legacy semiconductor.” Starting no later than August 9, 2024, the Secretary of Commerce must conduct the assessment every two years for the eight-year period after the last award is made under the CHIPS Incentive Program.
Advanced Manufacturing Investment Credit
The Treasury NPRM is intended to provide guidance for the implementation of Section 107 of the CHIPS and Science Act, which adds Section 48D to the Internal Revenue Code establishing the new Advanced Manufacturing Investment Credit (ITC). Specifically, the NPRM details eligibility criteria and defines key terms for the ITC, which generally amounts to 25% of a qualified investment in a facility intended for semiconductor manufacturing or the production of semiconductor manufacturing equipment. It is important to note that capital investments made by materials suppliers would not qualify for the ITC if the proposed rule is implemented as written.
The Treasury NPRM provides additional clarity regarding its implementation of the ITC provision in the CHIPS and Science Act by addressing the following six areas:
- Determination of advanced manufacturing investment credit
- Definitions of key terms in statute
- Qualified property
- Advanced manufacturing facility of an eligible taxpayer
- Beginning of construction
- Elective payment election
ITC Recapture – The Treasury NPRM stipulates that the Internal Revenue Service may recapture the ITC if an eligible taxpayer engages in certain “applicable transactions” over the 10-year period of the award agreement. The definitions included in this section mirror those in the National Security Guardrails NPRM, reflecting close coordination between DOC and Treasury in the formulation of their respective proposed rules.
Sources and additional information:
- National Security Guardrails NPRM
- National Security Guardrails NPRM press release
- CHIPS ITC NPRM
- CHIPS ITC NPRM press release
Please contact SEMI Global Advocacy and Public Policy with any questions at advocacy@semi.org.
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John Cooney is Vice President of Global Advocacy and Public Policy at SEMI.