Given the nature of the life sciences industry, including the desire of companies to share expertise and enter into joint research agreements and other collaborative partnerships in the drug development process, pharmaceutical companies often consider whether a transaction is a license or a sale. The main tax difference between a license and a sales transaction is that licensing payments are taxed as normal income and the proceeds of the sale are taxed as a capital gain. The main benefits are to pay attention to tax issues when calculating licensing figures and rates, developing agreements, settling payments and resolving disputes, and addressing these issues immediately with counterparties and policy makers to avoid costly surprises. Like most countries, Taiwan has double taxation agreements with a few dozen countries that allow a foreign licensee to apply for a reduction in withholding tax if they can prove that they paid taxes on the same royalties in their home country. However, the demand for such a reduction is secondary. The first step is for the purchaser to keep 20% of its payments to the licensee and pass this deduction on to the authorities. In Mondis v. Wistron, the parties entered into a patent licensing agreement (“PLA”) that allowed Wistron, a Taiwanese manufacturer of consumer electronics products, to use certain patents of Mondis, a non-practicing English unit, provided that Wistron pays certain royalties and “would pay and pay all customs duties, taxes and taxes (including, but not limited to source) , for sale and VAT). When a dispute ahead of Wistron`s payments under the agreement adjudicated, the parties were the subject of arbitration proceedings and the court issued an arbitration award requiring Wistron to pay more than $3 million in unpaid royalties, interest and fees. The price said nothing about the tax obligations of either party.
The inclusion of licence fees in the customs value of imported goods is particularly difficult when royalties are set as a fixed amount in the term licence agreement. The registrant cannot know in advance how many goods will be imported during this period. Larger problems can be caused by licensing agreements that determine the licence rate as a percentage of revenue. Upon importing the goods, the registrant cannot know the final sale price or, therefore, the exact amount of the royalties. In Russia, the situation is compounded by the fact that customs regulations do not provide a clear mechanism for the collection of tariffs on deferred customs value (i.e. in a situation where the final selling price of imported goods is not known at the time of importation).