The National Taxation Bureau of the Northern Area, Ministry of Finance (ROC) expresses that, according to Article 4, Paragraph 1, Subparagraph 21 of the Income Tax Act, royalty paid to a foreign enterprise for the use of its patent rights, trademark rights, and/or various kinds of special licensed franchises in order to introduce new production technology or products, improve product quality, or reduce production cost under the approval of the competent authority as a special case, is exempt from income tax. As such, the patent rights introduced by the profit-seeking enterprise of Taiwan, only when they are strictly owned by the foreign enterprise, the royalty paid may apply for tax exemption.

The Bureau states that a foreign profit-seeking enterprise has provided patent rights for a profit-seeking enterprise within its jurisdiction to produce "micro-processing products" and applied for income tax exemption for the royalty obtained. The Bureau however has discovered during the review that the patent owner in the patent certificate is in fact not the foreign profit-seeking enterprise itself. The results of the review indicate that the original patent owner authorized the patent rights to the foreign profit-seeking enterprise first, and the foreign profit-seeking enterprise then authorized the rights to the Taiwanese profit-seeking enterprise. Therefore, because the foreign profit-seeking enterprise is actually not the original patent owner, the application for tax exemption was rejected by the Bureau in accordance with the regulations of Article 4, Paragraph 1, Subparagraph 21 of the Income Tax Act.