Tax Authority Says Capital Expenses Include Purchases of IP
30 November 2012
Hong Kong’s Inland Revenue Department (IRD) has clarified that capital expenditures incurred by companies doing business in Hong Kong on the purchase of patents and know-how can also be deemed to include capital expenditure on the purchase of copyrights, registered designs and registered trademarks.
In a recently released notice the department also noted that capital expenditure incurred for the purchase of copyrights, registered designs and registered trademarks is deductible in equal installments over five years, commencing from the year of purchase. The latest Departmental interpretation & Practice Note No. 49 (DIPN 49) relates to Sections 16EA, 16EB and 16EC of the Inland Revenue Ordinance (IRO) that was issued in 2011 as part of a budget initiative to allow deduction for capital expenditure incurred when intellectual property rights (IPRs) – copyrights, registered designs or registered trademarks – are purchased. The DIPN 49 clarifies how IRD will determine:
• The deductions available to companies doing business in Hong Kong when they purchase Intellectual Property Rights (IPRs) when registration is still being processed and the clawback arrangements for invalidated/surrendered IPR registrations.
• The arrangements needed to find out the true market value of an IPR for tax purposes.
• What the commissioner will consider when deciding if there has been a sale and license back of a specified IPR.
• If capital expenditure is deductible when incurred on purchasing IPRs used in cross-border activities.
• The licensing of IPRs for use outside Hong Kong.
• IPRs with registration in multiple jurisdictions.
