A Taiwanese company (Taiwan Co) has developed a special device, which is being used as a spare part in the assembly of cars. This device is able to reduce operational costs substantially if it is used when producing the cars. Taiwan Co holds the worldwide patents and wants to know how exploitation of them can be done in a tax-effective way.

Suggested solution:

One effective solution is to establish a licensing company in Mauritius, which has an expanding network of double taxation treaties. As a result, this would substantially reduce the amount of withholding taxes on royalties paid to the Mauritius company (Mauritius Co).

Although Mauritius Co is subject to tax in its own country at a 15% rate, it is possible to minimize the spread between royalties received and royalties paid to Taiwan Co, as Mauritius has not adopted transfer pricing regulations that could impact on the amount of the spread.

In addition, royalties paid by the Mauritius company are not subject to a withholding tax in its own country.

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