On Aug. 9, 2022, President Biden signed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act (H.R.4346) into law, triggering significant actions to strengthen the U.S. semiconductor industry. According to the administration, the act will bolster “American manufacturing, supply chains, and national security, and invest in research and development (R&D), science and technology, and the workforce of the future to keep the United States the leader in the industries of tomorrow, including nanotechnology, clean energy, quantum computing, and artificial intelligence." The act is, in part, a response to the semiconductor supply chain shortage that has plagued numerous industries, accelerated inflation and threatened our nation’s economic recovery.
Below we provide an overview of key implementation developments to date, the incentive programs created by the act, important considerations for pursuit of CHIPS funding, and discuss advisory support offered by Baker Tilly.
Once a symbol of American technological superiority, semiconductor manufacturing is now centralized in east and southeast Asia, with the U.S. share of global chip manufacturing declining to 12% from 37% in 1990.2 In order to help the U.S. regain a stronghold in semiconductor production, the CHIPS act creates several economic incentives to catalyze growth. Under the Act, $52.7 billion will be allocated to both manufacturing incentives and R&D for semiconductor manufacturers over five years. Those can be broken into two categories:
1. Domestic manufacturing incentives ($39 billion):
2. Other CHIPS for America Act Programs ($13.7 billion):
In addition to the aforementioned direct subsidies, Section 107 of the Act creates a 25% advanced manufacturing investment tax credit for qualified investments, defined as investments in “a facility for which the primary purpose is the manufacturing of semiconductors or semiconductor manufacturing equipment. ”The administration will be working with the CHIPS Program Office (CPO) to implement section 9902 of the program to offer policy and stakeholder engagement support across CHIPS Programs.4 Questions about how the tax credit will be implemented concurrently with other Section 9902 incentives will be answered with future guidance from the CPO and the Department of Commerce. The credit only applies for “qualified properties” that enter service after Dec. 31, 2022, and enter construction before 2027.
The application window will begin February 2023, and the admissions will be on a rolling basis. The funding has specific guardrails and requirements attached, and it is important for interested companies to review eligibility requirements. To be considered eligible, the covered entity needs to enter into an agreement with Commerce secretary that restricts them from engaging with any significant transaction involving the material expansion of the semiconductor industry in China/any other foreign country that would include North Korea, Russia and Iran for 10 years after the award is received.
For bidding parties to be considered eligible, an applicant would need to have:
On Feb. 28, 2023, the CHIPS Program Office released its first funding opportunity fact sheet targeting “…applications for projects involving the construction, expansion, or modernization of commercial facilities for the fabrication of leading-edge, current-generation, and mature-node semiconductors.” Read more about the application and evaluation process here.
The application pool is anticipated to be quite competitive, and firms will have to assess their current business environment and determine whether applying for funding is worth restructuring aspects of their business model. Depending on the size and scope of the company, a nonbinding agreement, partnership with manufacturers and suppliers, or a joint venture/merger may increase the chances of receiving funding.
Baker Tilly is here to help any company with thoughts of entering into the application pool. In a dynamic and evolving business landscape, we offer support through various areas of focus related to CHIPS Act funding catered to your specific business needs. We are industry leaders in government contractor advisory services and look forward to being a pioneer and leader in ensuring semiconductor companies make the best choice for themselves today, and for the future of the industry.