Intangible assets and restrictions on depreciation

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Taxpayers often used intangible assets to generate tax costs. As a result of changes to tax laws that entered into force on January 1, 2018, the above activities have been limited. In particular, the costs related to the depreciation write-offs related to intangible assets were used.

What are intangible assets?

In the light of Art. 15 sec. 6 of the Act of February 15, 1992 on corporate income tax (i.e. Journal of Laws of 2017, item 2343, as amended), hereinafter referred to as the "CIT Act", consumption of fixed assets and intangible assets (depreciation write-offs) made only in accordance with the provisions of art. 16a-16m, taking into account art. 16 of the CIT Act.

However, pursuant to Art. 16b paragraph. 1 of the CIT Act, as a rule, the acquired goods that are suitable for economic use on the date of acceptance for use are subject to depreciation:

  • cooperative ownership right to a flat,

  • a cooperative right to a business premises,

  • right to a single-family house in a housing cooperative,

  • copyright or related property rights,

  • licenses,

  • rights specified in the Act of June 30, 2000 - Industrial Property Law (Journal of Laws of 2003, No. 119, item 1117, as amended),

  • value equal to the obtained information related to industrial, commercial, scientific or organizational knowledge (know-how),

- with an expected period of use longer than one year, used by the taxpayer for the purposes related to his business activity or given by him for use on the basis of a license agreement (sub-license), rental agreement, lease or agreement specified in art. 17a point 1 of the CIT Act as intangible assets.

Identification of intangible assets subject to depreciation

The value of a given intangible asset for the purpose of depreciation is its initial value (historical value). In practice, the most common basis for the valuation of intangible assets that are entered into the books for the first time is the purchase price or the cost of production.

The initial value of copyrights, including licenses and economic copyrights, is the purchase price of these rights. If the remuneration (fees) resulting from the license agreement or the agreement for the transfer of other property rights depends on the amount of revenues from the license or the rights obtained by the licensee or the buyer, this part of the remuneration is not taken into account when determining the initial value (see Article 16g). section 14 of the CIT Act).

The amortization period of intangible assets

It should be emphasized that the amount of tax depreciation rates is not strictly defined in the CIT Act. Thus, the taxpayer may decide on the amount of depreciation rates. At this point, we would like to remind you that the above-mentioned freedom is, however, somewhat limited. The tax regulations impose minimum depreciation periods for these components (see Article 16m (1) of the CIT Act). Taking the above into account, there are no obstacles to extending the minimum amortization periods. However, extending the depreciation period in most cases does not seem favorable from the point of view of the tax burden. The minimum depreciation period for some intangible assets is presented in the table below.

Intangible and legal value

The minimum period of making depreciation write-offs

Copyright

24 months (2 years)

Research and development costs

12 months (1 year)

Radio and TV broadcasting license

24 months (2 years)

Other intangible assets

60 months (5 years)

Restrictions on amortization of intangible assets prior to January 1, 2018

In the light of the CIT Act, until the end of 2017, only acquired intangible assets could be subject to tax depreciation. Thus, depreciation write-offs from self-generated intangible assets were not included in tax costs. In order to avoid the above limitation, taxpayers sold their intangible assets. After the sale, they purchased them, which allowed them to start depreciation.

Example 1.

The company has developed a logo for its company and goods. The value of this sign has increased significantly in a few years. So far, the Company has not recognized the costs associated with this mark in its costs. She sold it to her other company. In it, the logo was valued at market value (much higher than the selling price). The company has signed a trademark license agreement with the company. The value of the license fees exceeds several hundred times the value of the sale of the trademark. Thus, the Company can recognize tax costs thanks to this operation. They will be significant, which will allow for a significant reduction in the tax base.

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Changes from January 1, 2018 regarding the amortization of intangible assets

Art. 16 sec. 1 point 64a of the CIT Act, which limits the possibility of including depreciation write-offs from the initial value of the acquired intangible assets referred to in art. 16b paragraph. 1 items 4-7 of the CIT Act, if these rights and values ​​were previously acquired or produced by the taxpayer, and then disposed of - in a part exceeding the income obtained from their sale.

Similarly, the tax effects will be caused by the added art. 16 sec. 1 point 73 of the CIT Act, which excludes from tax deductible costs all kinds of fees and charges for the use or the right to use the rights and values ​​referred to in Art. 16b paragraph. 1 points 4-7, acquired or produced by the entity and then disposed of - in part exceeding the revenue obtained from their disposal.

The above changes are aimed at limiting tax optimization using, inter alia, trademarks.

Example 2.

We will use the assumptions in the example above to illustrate the difference. The company has developed a logo for its company and goods. The value of this sign has increased significantly in a few years. The Company has not yet recognized the costs associated with this mark in its costs. She sold it to her other company. In it, the logo was valued at market value (much higher than the selling price). The company has signed a trademark license agreement with the company. The value of the license fees exceeds several hundred times the value of the sale of the trademark. In the new legal status, the company will not get anything tax. It will only recognize in its tax costs the amount for which it has sold the trademark.

The changes should be assessed positively. Thanks to them, the tax system will be sealed, and companies will not be able to use sometimes low-value signs or other intangible assets to reduce their tax liabilities.