Expanded Scope of Tax Deductions for Purchase of IPRs
The Inland Revenue (Amendment) (No. 5) Ordinance 2018 (the “Amendment Ordinance”) was gazetted on 29 June 2018 and came into effect on the same day. The Amendment Ordinance expands the scope of profits tax deductions for capital expenditure incurred by enterprises for the purchase of Intellectual Property (“IP”) rights with effect from the year of tax assessment 2018/2019 (beginning on or after 1 April 2018).
The five types of IP rights that were originally eligible (and remain eligible) for tax deductions are patent, know-how, copyright, registered designs and registered trademarks. The Amendment Ordinance introduces three new types of IP rights, namely, performer’s economic rights, protected layout-design (topography) rights, and protected plant varieties, details of which are summarised below:-
1. Performer’s Economic Rights
Pursuant to Copyright Ordinance (Cap. 528), a “Performer” is “an actor, singer, musician, dancer or any other person who acts, sings, delivers, declaims, plays in, interprets, or otherwise performs a performance.”Performer’s Economic Rights refer to (i) the right of reproduction, (ii) the right of distribution, (iii) the right of making available to the public and (iv) the rental right.
2. Protected Layout-design (topography) Rights
According to Layout-Design (Topography) of Integrated Circuits Ordinance (Cap. 445), layout-design (topography) means the 3-dimensional disposition prepared for an integrated circuit intended for manufacture. Layout-design that is owned by a qualified owner and is “original in the sense that it is the result of its creator’s own intellectual effort” is protected under the Ordinance.
3. Protected Plant Variety Rights
Protected Plant Variety Rights refer to the right (i) to produce for sale, (ii) import / export and (iii) propagate that variety for the purposes of commercial production of fruits granted under Part III of the Plant Varieties Protection Ordinance (Cap. 490).
The Amendment Ordinance aims to encourage companies to engage in IP trading business and reflects the Government’s continuous effort in fostering Hong Kong’s status as an IP trading hub in Asia. More companies with a focus on IP acquisitions would benefit under the new regime.
Authors : Jacqueline Chu, Consultant
Pauline Fong, Trainee Solicitor
Date : 9 July 2018