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Intellectual Property Taxation

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Current tax law provides for no separate procedure for tax accounting of all intellectual property items. Moreover, in different circumstances the same IP item may be accounted in different ways. Therefore, the main task of the IP tax accounting is to properly classify the item that was included in the company’s intellectual property. In other words, an accountant should establish: whether the intangible asset was added to the company’s holdings (after being purchased or company-developed), or the company incurred costs related to the use of the intangible asset owned by a different individual or legal entity.
Remember that a company may own independently developed (and registered, if needed) items of intellectual property as well as proprietary rights to the items of intellectual property acquired under the respective agreements (e.g. under the exclusive property right transfer agreement). Specifically, the following documents may be used to identify the items of intellectual property:
- Certificate – for a trademark (brand, products marks and service marks), integrated circuit topography,
- Patent – for industrial property (invention, utility model, industrial design),
- Exclusive Property Right Transfer Agreement – for copyright items,
- the order prescribing to classify information as a trade secret, etc.
In tax accounting, an item of intellectual property (property rights thereto acquired by a company) may be recognised as an intangible asset if it can be defined as described in Clause 1.2 Section 1 of the Profit Tax Act. Subject to this provision of the Act, intangible assets mean the items of intellectual and industrial property and other similar rights duly recognised as the taxpayer’s property rights.
Therefore, in tax accounting of businesses, the main criterion for intangible asset recognition is whether the company has exclusive property rights to the item of intellectual property. In terms of tax accounting, the useful life of such items is immaterial. What does this mean?
First, even if the useful life of the intellectual property item is shorter than one year, then its cost may be accounted by the owner as an intangible asset.
Second, items of intellectual property and the rights thereto acquired by the entity may be only recognised as intangible assets in the tax accounts of the right holder. If the items of intellectual property were transferred for temporary use without the right of disposal, the entity may not account such items as a part of its intangible assets.

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