Tax Deduction for R&D Expenditure in Patented Products

The Taipei High Administrative Court held that the research and development (R&D) expenditure of business entity is tax deductible if the result of the R&D obtains patent protection in many countries.

Ruey Yuan Co., Ltd., a trading company operating business of self- branded luggage, founded a R&D department to enhance the capacity of product design. In 1997, Ruey Yuan listed 15% of the R&D expenditure as tax deductible item under the Statute of Upgrading Industries (the Statute). However, the National Tax Administration of Taipei deleted the entire claimed amount, reasoning that the expenditure failed to meet the standard of the Statute. Ruey Yuan filed an administrative appeal.

In 89-Pan-791 judgement, the Taipei High Administrative Court pointed out that the Statute provides tax deduction for the R&D expenditure for the purpose of encouraging business entities engaging in R&D activities. The R&D of Ruey Yuan produced outcomes that were granted various patents from many countries, and Ruey Yuan sold the self-branded products all over the world. The activity precisely fell into the scope of encouraged activities of the Statute. Moreover, the same R&D expenditure was permitted for tax deduction by the National Tax Administration in 1998, indicating inconsistency of the determinations. Therefore, the Taipei High Administrative Court ruled in favor of Ruey Yuan.