Amortization of Procuring Cost of Know-how without An Issued Patent Not Allowed.

　Companies are no longer allowed to amortize the procuring cost of intangible assets in the form of capitalized know-how because of the lack of a defined validity term of the know-how like a technology patent.

　Shareholder A’ of Company A contributed certain know-how in 2003, which was valued TWD20 million for capitalization and accounted for as intangible asset with the relevant cost amortized over a five-year period.  This amortization, however, was denied by the National Tax Administration (NTA) by reason of lack of an issued patent on the subject know-how that defines a legal validity term to qualify Company A’s capitalization of the know-how for amortization under Article 60 of the Income Tax Act.

　Company A appealed the NTA’s decision and thereafter filed administrative suit on the adverse appellate decision.  The Supreme Administrative Court upholds NTA’s decision.

　The NTA indicated that according to Article 60 of the Income Tax Act, only business rights, trademark rights, copyrights, patent rights and other franchises which are acquired by purchase may be recognized as corporate assets.  Moreover, for trademark rights, patent rights and other franchises, the cost shall be amortized in equal annual installments over the residual validity term of the rights.

　According to the relevant written explanation issued by the Ministry of Finance, Article 60 of the Income Tax Act regarding amortization of the cost of corporate intangible assets does not operate with respect to secret method or process of any kind which the company purchased if there is no patent issued on such method or process.  (2008.03)

/EMA