Therefore, the exploitation of intellectual property by the taker does not generate operating income for a certain period of time without payment of royalties under the unpaid licensing agreement, provided that the parties have extended the unpaid relationships for the period for which the taker then paid royalties. As in Wistron, Mondis objected to the deference and the court sided with Mondis, but for various reasons. In that case, the judgment concerned two Innolux companies — the Taiwanese parent company and a U.S. subsidiary — and the two defendants were therefore jointly liable for the judgment. The court stated that “if foreign and American companies are jointly responsible, U.S. judgments must be paid in full, regardless of foreign withholding taxes.” Mondis v. Innolux, supra, referring to QinetiQ Ltd against Samsung Telecomms. That`s right. L.P., Case 2:03-cv-22 (E.D. Tex).
7 Sept. 2005). As in the Wistron case, the court`s decision forced Innolux to pay Taiwan mondis taxes. In November 2016, a U.S. district court ordered a Taiwanese company to pay a fee on royalties it paid to a foreign licensee, even though these taxes are typically the licensee`s obligation. Mondis Technology Ltd. v. Wistron Corporation, Case No. 15-cv-02340-RA (S.D.N.Y. November 3, 2016).
A few years earlier, the same licensee forced another Taiwanese licensee to pay his taxes from Taiwan. Mondis Technology Ltd. v. Chimei-Innolux Corp., Case No. 2:11-cv-378-JRG (E.D. Tex). April 30, 2012). 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 addition, the contract may allow the licensee to temporarily use intellectual property without paying royalties to the rights holder to give him time to set up and develop a business. In this case, the tax authorities may also conclude that during this period, the taxpayer used the mark without consideration, resulting in non-professional income. In this case, the contract to reduce these tax risks should provide for the obligation for the taker to pay payments subject to licence during the establishment of his business.