Damages gained by foreign companies against patent infringement shall not apply to the tax-free preferential measure

Source: Economic Daily News 04/16/2002

Translated by Joanne Lue

    In March and April 2001, Philips and several local manufacturers including Ritek Corporation had disputes over patent license.  Philips’ tax-free royalties also became a focal point.  In view of the daily increasing transnational disputes over royalties, the Industrial Development Bureau (“IDB”) of the Ministry of Economic Affairs confirmed on the15th that the royalties collected from the manufacturing industry and technical service industry by foreign profit-making enterprises is applicable to the income tax-free standards.  The new rule provides that foreign enterprises which acquire patent rights in this country can be exempted from paying taxes on the royalties collected from local manufacturers who take patent license from such foreign enterprises.  If a foreign enterprise doesn’t acquire patent in this country, whether the foreign enterprise can be exempted from paying tax shall be examined and determined in accordance with the provisions concerning professional technology.  However, if a foreign enterprise gains damages as a result of a raid action against a local manufacturer for patent infringement, such damages shall not be deemed royalties and shall not enjoy the tax-free preference.