Newsletter
NEW DESIGNS USING NEW MATERIALS QUALIFY FOR IN-VESTMENT TAX RELIEF
In a year 2000 judgment, the Taipei High Ad-ministrative Court stated that where a company markets products overseas under its own brand and engages in the development of new materials, and has obtained many ROC and foreign patents for the fruits of its research, it may not be refused investment tax credit incentives for its new product designs on the grounds that such designs are routine and continuous improvements.
Article 6 Paragraph 1 Item 3 of the Statute for Upgrading Industries (SUI) provides that to en-courage companies to upgrade technologically, they may offset 5% to 20% of their investments in research and development or in personnel training against corporate income tax. Paragraph 2 of the Regulations Governing Tax Credits for Companies' Expenditures on Research and De-velopment and Personnel Training further pro-vides that such R&D expenditures include companies' expenditures on researching new products, upgrading their production technology, improving their provision of services, and im-proving their production processes. In past practice the tax collection authorities have con-sistently taken the view that routine and con-tinuous improvements of products do not qualify as new product development, and that R&D spending associated with such improvements is therefore not eligible for investment tax credits.
However, the court held that the legislative intent in providing for tax credits for investments in research and development was to encourage lo-cal companies to conduct basic R&D relevant to their production technologies. If a company's R&D department has engaged itself in the se-lection, development and testing of various types of new materials, and as a result of such invest-ment in R&D the company has obtained many domestic and foreign patents, and the company markets its products overseas under its own brand name, this clearly complies with the above provisions of Article 6 Paragraph 1 Item 3 of SUI. The court directed the tax collection authorities to reexamine all the expenditure items in the company's tax declaration, and to make a new disposition in accordance with the law.