The Ministry of Finance recently called the attention of businesses to a judgment made by the Supreme Administrative Court, which upheld the position of the Ministry that an unpatented technology of a business is not included in the scope of so-called “intangible assets” and therefore is not eligible for amortization of cost under Article 60 of Income Tax Law.

According to Article 60 of Income Tax Law, the cost of intangible assets shall be amortized in equal annual installments in accordance with the following prescribed number of years of amortization:

1. Amortization of business rights shall be based on a period of ten years;
2. Amortization of copyrights shall be based on a period of fifteen years;
3. Amortization of trademarks, patents and all other franchises may be based on the number of years of enjoyment of such rights after acquisition.

The Ministry gave a warning to the businesses that unpatented know-how or technologies are not regarded as intangible assets under the Law as they fail to generate any proprietary or controllable right to the owner and as such the cost and expense for acquiring those technologies cannot be recognized as amortizable operation cost. As the forms and types of technologies exploited by enterprises become more and more diversified along with the industrial development of the society, not every item of those technologies is eligible for patent protection. Some enterprises even elect to keep their know-how or technology from disclosure involved in a patent application so as to enjoy prolonged edge over their competitors. As a result, many disputes or conflicts have occurred between the enterprises and tax authorities in the accounting or taxation practice. It is believed that the judgment of the Supreme Administrative Court may help to curb many administrative procedures from arising in the future.

(Author: Perkin LIAW has an LL.B. degree and an LL.M. degree in IP Law. He acted as the Chief of the Trademark Group at Tai E for a number of years before taking his current role as Manager of International Services. He specializes in trademark law, international IP litigation, technology licensing, corporate and commercial law, as well as other international agreements.)