Supreme Administrative Court Says 50% of Royalty Received on Assignment of Patent And Relevant Cost/Expenses Deductible from Taxable Income.

The Supreme Administrative Court has recently delivered a major decision:  50% of the royalty received from the assignment of a patent may be deducted from the taxable income under the Statute for Upgrading Industries (if the relevant eligibility requirements are duly fulfilled) and the cost and necessary expenses incurred from the assignment may be deductible as well.

A Mr. Li from Tainan and his wife signed an agreement with Taiwan Hua Si Co. in 2007 to assign their No. I266660 and No. 055101 Taiwanese patents to the company who paid TWD161.6 million and TWD40.40 million to the Lis for the two patents respectively.

When calculating the tax payable on his income received in 2007, Li deducted TWD48.48 million and TWD12.12 million respectively from the above two royalty payments as deductible necessary expenses and cost.  That is to say, the net royalty payments Li received are TWD113.12 million and TWD23.28 million respectively.  After further deducting the tax benefit provided under Article 11 of the Statute for Upgrading Industries from the net royal payments (namely, 50% thereof), Li requested the tax authority for a tax refund of TWD40.40 million.

However, approving the deduction of 50% of the royalty payments Li received from his taxable income under the above Statute, both of the National Tax Administration of Southern Taiwan (NTA) and the Ministry of Finance deny Li’s declaration of the cost and necessary expenses as deductibles.

Li brought the matter to the Kaohsiung High Administrative Court and won the suit.  The NTA appealed but in vain.  The Supreme Administrative Court dismissed the NTA’s appeal holding that the appellant agency’s decision denying Li’s declaration to deduct his cost and necessary expenses from his taxable income after deducting the tax benefit under the above Statute is untenable.  (2011.07)
/EMA