Depreciation of Intellectual Property - Going, Going…Gone!
Sarah A. Hinchliffe
College of William and Mary - Mason School of Business; William & Mary Law School
January 10, 2014
27 INTELL. PROP. L. BULL no. 2 (2014)
Intangible assets can create much more value when they are managed in a tax efficient manner. The tax system, in particular the income tax and capital gains tax (CGT) regimes, offer incentives and pose traps for entities who exploit intangible assets. It is not uncommon for IP lawyers to encounter tax queries, including:
• Taxation implications when an IP asset is disposed of;
• The tax treatment of expenses incurred in creating, or acquiring, IP assets;
• Taxation minimization strategies with respect to the above mentioned;
• The tax treatment when seeking to quantify, or obtain, remedies in a matter concerning IP assets.
This article focuses on the first two, and addresses some key issues for consideration by lawyers in boutique, and medium-sized firms who have been exposed to minimal tax law.
Some of the key take-away points that lawyers should be aware of, include:
• That some IP assets may be depreciated;
• Depreciation of an IP asset may be deductible under the income tax regime while the asset is held;
• Before an IP asset is depreciated, the value of the IP asset must be ascertained;
• If an IP asset has been depreciated, then the total depreciation amount must be accounted for when the asset is disposed;
• There exist different standards for valuing and reporting IP under Accounting Standards, than under taxation law.
Key features of taxation minimization, and repercussions of taxation anti-avoidance (both domestically, and as a result of locating IP assets offshore), are discussed in a subsequent article.
Number of Pages in PDF File: 7
Keywords: Depreciation, Accounting, Taxation, Intellectual Property, IP Asset
Date posted: March 3, 2014 ; Last revised: October 13, 2014