Section 19B of the Singapore Income Tax Act permits companies to claim writing down allowances (WDA) on capital expenditures incurred on the acquisition of qualifying Intellectual Property Rights (IPRs) for use in their business. The company must submit an independent valuation report when the IPRs acquired exceed certain thresholds to prove that capital expenditures are not exceeding the open market price.
IRAS published the e-Tax Guide in 2018 to provide the information required for an IPR valuation report to be submitted for WDA claims under Section 19B of the Income Tax Act.
What should the valuation report include?
If a company’s capital expenditures exceed particular thresholds, an independent valuation report must be submitted to the Comptroller. Information that should be included in the valuation report is as follows:
a) Purpose of the valuation
b) Definition of value
c) Date of the valuation
d) Type(s) of IPR being valued
e) Background of the company’s business and value drivers
f) Valuation methods and approaches
g) Valuation inputs and assumptions
h) Valuation conclusion
i) Information relied on upon determining the valuation
j) Material risks
k) Limitations and disclaimers
l) Terms of engagement
m) Credentials of Valuer
What qualifies for WDA for intellectual property rights?
The last day of the basis period of the Year of Assessment (YA) is the deadline for companies to claim writing-down allowances on capital expenditures incurred to acquire IPRs for use in their business or trade.
The qualifying IPRs for the purpose of Section 19B are:
1. Patents;
2. Copyrights;
3. Trademarks;
4. Registered designs;
5. Geographical indications;
6. Lay-out designs of an integrated circuit;
7. Trade secrets or information with a commercial value; and
8. Plant varieties.
Section 19B explicitly excludes the following categories of information from “copyrights” and “trade secrets or information with commercial value”:
a) Information of customers of a business or trade, such as a list of those customers and requirements of those customers, gathered while carrying on that business or trade.
b) Information on work processes such as standard operating procedures, other than industrial technique, or information, that is likely to assist in the processing or manufacturing of materials or goods.
c) Compilation of any information as described in paragraph (a) or (b); and
d) Such other matter as the Minister may by regulations prescribe.
Submission of the valuation report
To qualify for WDA, capital expenditures on qualifying IPRs must not exceed the price at which they could have been acquired at the time of acquisition on the open market. Amounts qualifying for WDA may otherwise be determined based on open market prices of qualifying IPRs.
Conclusion
The types of IPRs being valued must comply with the provisions of Section 19B. It is essential for tax, finance and valuation experts and professionals to be aware of the conditions of Section 19B and the relevant information that should be provided in the valuation report. They should also be aware of what to know about managing intellectual property.Max Lewis offers an array of reliable and effective corporate services, from transfer pricing services, to international tax planning. We also offer expert services for GST Assisted Self Help Kit. Do not hesitate to reach out to us today for more information about our various offers.
*The above represents our opinions and views and does not reflect the position of any entities mentioned.