Newsletter
Sale of Non-ROC Patent/Trademark Subject to Business tax
Pursuant to Articles 1 and 4 of the Business Tax Act, a sale of services within the ROC is subject to business tax; a sale of services within the ROC refers to services supplied or utilized within the ROC. However, it is not clear as to whether "services supplied or utilized within the ROC" refers to "service provider/user located within the ROC" or "services provided/used within the ROC ".
Recently the Ministry of Finance (MOF) issued a tax ruling regarding a ROC business operator that sold its non-ROC patent/trademark to another ROC business operator ("Tax Ruling"). In the Tax Ruling, the MOF deemed that the sale of the patent/trademark constitutes a sale of service, and as the seller and the buyer of the service are located withinthe ROC, the service should be deemed supplied and utilized within the ROC and therefore, subject to business tax. Moreover, as the service sold is not export-related, the zero percent tax rate would not be applicable.
According to the Tax Ruling, the MOF determined that whether service is supplied or utilized within the ROC is based on whether the service provider/user is located within the ROC. As the MOF disregards the substance of the tax object, when a foreign business operator sells its ROC patent/trademark to another foreign business operator, it would lead to the conclusion that such sale is not subject to business tax. Such conclusion, however, may require further discussion.
In fact, non-ROC patents/trademarks are not protected by the ROC law; in other words, non-ROC patents/trademarks have no "usage value" within the ROC. A buyer normally purchases a non-ROC patent/trademark for the purpose of using such patent/trademark within the registration country. Therefore, even if the seller and the buyer of the non-ROC patent/trademark are ROC business operators, such sale of service is not supplied or utilized within the ROC; hence should not be subject to business tax and would be irrelevant to the zero percent tax rate.
Given the above, the MOF should supplement the Tax Ruling so as to avoid any doubt when the Tax Ruling is applied.