How to amortize trademarks - basic information
The Act of June 30, 2000 Industrial Property Law clearly defines the concept of a trademark - Art. 120 paragraph 1 says that it is any symbol that can be represented graphically, suitable for marking the goods or services of a given company. This term is quite broad - on its basis, we can consider words, letters, numbers, colors, spatial form, ornaments and combinations of these elements as trademarks. In addition, the trademark may be a melody, a beep, and also a fragrance.
Trademarks are components of the company's assets and the entrepreneur may depreciate them provided that he meets the requirements set out in Art. 22b paragraph. 1 of the Personal Income Tax Act. It should be noted, however, that the trademark itself is not depreciated, but the protection right to it. It should have certain features:
constitute the right specified in the Industrial Property Law,
be acquired by the taxpayer,
be fit for economic use on the day of acceptance for use,
be 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 or leasing agreement.
A trademark may be depreciated only if, in the light of the law, it can be considered a work, i.e. it has not been granted a protection right, and also meets the definition of a work in accordance with the Copyright and Related Rights Act - it has individual features and has been established in any form.
In the context of trademark amortization, particular attention should be paid to the expected period of its use - it should not be shorter than one year.
Importantly, all of the above-mentioned conditions must be met together. This limits to some extent the entrepreneur's ability to amortize trademarks. Another limitation is the method of acquiring a trademark - if it was originally acquired (i.e. manufactured on its own and for its own needs) or was registered in the Patent Office, the entrepreneur cannot depreciate it, because in the opinion of the tax office, the trademark becomes value produced, not acquired. Due to this fact, the expenses that the entrepreneur incurred in producing the right to the trademark (i.e. registration) are recognized as tax deductible costs on the date they are incurred. This means that the depreciation write-off of the trademark right can be made only if the entrepreneur has acquired the mark in a secondary manner, i.e. on the day of its acquisition, the taxpayer has special legal protection under a legally valid decision of the Patent Office.
Trademarks - amortization and copyright
If an unregistered trademark can be classified as a work in accordance with the provisions of the Act on Copyright and Related Rights, the entrepreneur may depreciate it, or strictly speaking - may depreciate the copyright to the trademark.
According to Art. 1 clause 1 and 2 of the Act of February 4, 1994 on copyright and related rights, any manifestation of creative activity of an individual nature, established in any form, regardless of its value, purpose and manner of expression, is a work - that is, the subject of copyright. In particular, works expressed in words, mathematical symbols and graphic signs are protected. As mentioned before, an unregistered trademark may be subject to copyright. They, in turn, belong to the catalog of intangible assets included in Art. 22b u. 1 of the Personal Income Tax Act. This position, although it raises doubts in the light of the provisions of the Copyright Act, was confirmed in several tax interpretations as well as in court rulings.
The individual interpretation of the director of the Tax Chamber in Warsaw of July 26, 2013 (reference number IPPB1 / 415-623 / 13-2-EC) and the interpretation of the director of the Tax Chamber in Warsaw of October 22, 2012 (reference number IPPB3 / 423-518 / 12-2 / PK1). However, the most important is the judgment of the Poznań Voivodship Administrative Court of 28 June 2011 (reference number I SA / Po 210/11), later confirmed by the Supreme Administrative Court in the judgment of 8 October 2013 (reference number II FSK 2812/11). It contains an exhaustive explanation: (...) while a trademark as a creation is protected in accordance with the provisions of the Copyright Act, the same word-figurative mark submitted for registration for protection rights for a trademark loses the attribute of a work. because at the time of filing for registration by the competent patent authority, its protection begins, in a way, on the basis of the provisions of the Act - Industrial Property Law.
Therefore, it is necessary to consider whether to choose copyright protection of the trademark, or to opt for protection rights resulting from industrial property law. It should also not be forgotten that the aforementioned interpretations and judgment refer to an individual case and although we may refer to them in certain situations, they do not constitute a general interpretation of the law.
Trademarks - intangible and legal value
A trademark, unless it was produced by the taxpayer himself, is classified as an intangible asset. In their case, especially if they were acquired by way of purchase, the initial value is the purchase price, increased by the costs related to the purchase accrued until the date of transferring the intangible asset for use, in particular by the costs of notary, fiscal and other fees, interest, commission.
Any tax on goods and services is also deducted from this amount. The exception to this rule are cases where, in accordance with separate regulations, the tax on goods and services is not input tax, the taxpayer is not entitled to reduce the amount of tax due by input tax or refund the tax difference within the meaning of the Act on tax on goods and services.
The price is also adjusted for exchange differences, accrued until the date of putting the intangible and legal asset into use. The initial value is calculated differently, even in the case of the acquisition of assets by inheritance, donation or in-kind contribution - in this case, the initial value is the market value on the date of purchase, unless the contract on the basis of which they were acquired specifies it at a lower amount.
It is not necessary to make depreciation write-offs if the intangible asset is valued at less than PLN 3,500 (net for active VAT payers, gross - for entities exempt from VAT). The expenses incurred by the entrepreneur for their purchase are then classified as tax deductible costs in the month they are put into use. You can also enter a low-value purchase in the Register of intangible assets and make a one-off depreciation write-off from the initial value in the month when they are put into use or in the next month.
Depreciation write-offs from the initial value of intangible assets are made from the first month following the month in which these values were entered into the register of intangible assets until the end of the month in which the sum of depreciation write-offs is equated with their initial value or in which they were made. in liquidation, disposed of or found to be deficient.
Importantly, the depreciation period of the subject of copyright and trademark protection rights may not be shorter than 60 months, which means that the maximum depreciation rate may not exceed 20%.
The XYZ Company purchased the goods and copyrights from the ABC Company for the amount of PLN 3,000. How to settle for this type of purchase?
There are three solutions:
showing the purchase directly in tax deductible costs - the appropriate column will be col. 13 KPiR - other expenses
one-off depreciation due to low-value intangible assets; then the total amount of PLN 3,000 is shown by the taxpayer in the KPiR col. 13 - other expenses in the month in which the intangible asset was accepted for use;
linear depreciation, which must last min. 60 months (5 years) then max. the depreciation rate is 20%:
a) annual depreciation write-off for the trademark:
PLN 3,000 x 20% = PLN 600
b) monthly depreciation write-off for the trademark:
PLN 600: 12 months = PLN 50
- depreciation write-offs are included in costs, starting from the month following the month of taking the intangible and legal asset into use.
The decision on the settlement of a low-value trademark should be made by the entrepreneur in such a way that it is the most favorable for him in terms of taxation.
ABG has acquired a copyrighted trademark from AHL. The initial value of the trademark is PLN 15,000. What will the depreciation write-offs look like, assuming that:
will be amortized over the minimum required period of 5 years (60 months)
will be amortized for 10 years (120 months)
will apply a depreciation rate of 12%
ad.a. In the case of depreciation for a period of 5 years, max. The depreciation rate that can be applied is 20%.
annual depreciation charge: PLN 15,000 x 20% = PLN 3,000
monthly depreciation write-off: PLN 3,000: 12 months = PLN 250
ad.b. For 10 years' depreciation, the depreciation rate to be applied is 10%.
annual depreciation charge: PLN 15,000 x 10% = PLN 1,500
monthly depreciation write-off: PLN 1,500: 12 months = PLN 125
ad.c. If the depreciation rate is 12%, the depreciation period will be 8 years and 4 months:
annual depreciation charge: PLN 15,000 x 12% = PLN 1,800
monthly depreciation write-off: PLN 1,800: 12 months = PLN 150
As in the first example, a taxpayer purchasing a trademark should choose the option that will be optimal in terms of taxation in his individual situation. If the planned revenues are not too high, then you can afford a longer period of amortization of the trademark. However, when the company plans to increase revenues, then the best solution will be to use a high depreciation rate with the shortest possible depreciation period, as permitted by applicable regulations.