Cap 112 s 16EA Purchase of specified intellectual property rights (Inland Revenue Ordinance)

Contents of Section

Chapter:	112	Title:	Inland Revenue Ordinance	Gazette Number:	E.R. 1 of 2012
Section:	16EA	Heading:	Purchase of specified intellectual property rights	Version Date:	09/02/2012

(1) Despite section 17, this section applies in ascertaining the profits from a trade, profession or business in respect of which a person is chargeable to tax under this Part for any year of assessment.
(2) Any specified capital expenditure incurred by the person during the basis period for a year of assessment is to be deducted if the specified intellectual property right concerned is purchased for use in the trade, profession or business in the production of profits in respect of which the person is chargeable to tax under this Part.
(3) Unless subsection (4) applies and subject to subsections (5) and (6), a deduction allowable under subsection (2) is to be deducted by 5 equal amounts—

(a) one for the year of assessment in the basis period for which the specified capital expenditure is incurred; and

(b) one for each of the next succeeding 4 years of assessment.

(4) If the specified intellectual property right—

(a) is a copyright or registered design; and

(b) is due to expire at the end of its maximum period of protection, and that expiry is to occur before the expiry of the basis period for the last of the 5 succeeding years of assessment mentioned in subsection (3),

subject to subsections (5) and (6), a deduction allowable under subsection (2) is to be deducted by a number of equal amounts—

(d) one for each of the next succeeding years a part or the whole of the basis period of each of which years coincides with a part or the whole of the remaining part of the maximum period of protection.

(5) A deduction mentioned in subsection (3) or (4) is allowable only if, at the end of the basis period for a year of assessment for which an amount is to be deducted, the specified intellectual property right concerned has not been sold by the person who incurred the specified capital expenditure.
(6) A deduction mentioned in subsection (3) or (4) is allowable only if—

(a) the specified intellectual property right concerned has been used in the trade, profession or business in the production of profits in respect of which the person who incurred the specified capital expenditure is chargeable to tax under this Part;

(b) (in the case of the specified intellectual property right being a copyright) the copyright subsists;

(c) (in the case of the specified intellectual property right being a registered design) the registration of the design is in force; and

(d) (in the case of the specified intellectual property right being a registered trade mark) the registration of the trade mark is in force,

during a part or the whole of the basis period for a year of assessment for which an amount is deducted.
(7) If any specified intellectual property right is used partly in the production of profits chargeable to tax under this Part and partly for any other purposes, the deduction allowable under this section is that part of the specified capital expenditure that is proportionate to the extent of the use of the specified intellectual property right in the production of the profits chargeable to tax under this Part.
(8) If any specified intellectual property rights in respect of which a deduction is allowable under this section are purchased or sold together or with any other assets for one consideration, the Commissioner may, for the purposes of the calculation of the deduction under subsection (2) or the calculation of the trading receipt under section 16EB(2), and having regard to all the circumstances of the transaction, allocate a consideration for the purchase or sale of each individual asset.
(9) For the purposes of this section and section 16EB, if the Commissioner is of the opinion that the consideration for the purchase or sale of any specified intellectual property right does not represent the true market value of the specified intellectual property right at the time of that purchase or sale, the Commissioner may determine the true market value, and the amount so determined is to be treated—

(a) for the purposes of subsection (2), as the specified capital expenditure; and

(b) for the purposes of section 16EB(2), as the proceeds of sale of the specified intellectual property right, and a reference to relevant proceeds of sale is to be construed accordingly.

(10) For the purposes of this section, any specified capital expenditure incurred for the purposes of a trade, profession or business by a person about to carry on the trade, profession or business is to be treated as if it had been incurred by that person on the first day on which the person carries on the trade, profession or business.
(11) In this section and sections 16EB and 16EC—
copyright (版權) means—

(a) a copyright within the meaning of section 2(1) of the Copyright Ordinance (Cap 528), including an unregistered corresponding design as defined by section 87(5)(b) of that Ordinance; or

(b) any right that—

(i) subsists under the law of a place outside Hong Kong in any work in which a copyright referred to in paragraph (a) may subsist; and

(ii) corresponds to a copyright referred to in paragraph (a);

maximum period of protection (最長保護限期) means—

(a) in the case of a specified intellectual property right that is a copyright—

(i) (if the copyright subsists under the Copyright Ordinance (Cap 528)) the maximum period for which the copyright may subsist under that Ordinance; or

(ii) (if the copyright subsists under the law of a place outside Hong Kong) the maximum period for which the copyright may subsist under the law of that place;

(b) in the case of a specified intellectual property right that is a registered design—

(i) (if the design is registered under the Registered Designs Ordinance (Cap 522)) the maximum period for which the design may be registered under that Ordinance; or

(ii) (if the design is registered under the law of a place outside Hong Kong) the maximum period for which the design may be registered under the law of that place;

registered design (註冊外觀設計) means a design registered under section 25 of the Registered Designs Ordinance (Cap 522) or under the law of any place outside Hong Kong;
registered trade mark (註冊商標) means a trade mark registered under section 47 of the Trade Marks Ordinance (Cap 559) or under the law of any place outside Hong Kong;
specified capital expenditure (指明資本開支)—

(a) means any capital expenditure incurred on the purchase of any specified intellectual property right and includes legal expenses and valuation fees incurred in connection with the purchase; but

(b) does not include any capital expenditure that may be deducted under any other section of this Part;

specified intellectual property right (指明知識產權) means copyright, registered design or registered trade mark.
(12) In this section and sections 16EB and 16EC, a reference to the purchase or sale of any specified intellectual property right includes the purchase or sale of a share or interest in the specified intellectual property right.
(13) To avoid doubt, any expenditure incurred on the acquisition of a licence (as defined by section 16EC(8)) of any specified intellectual property right is not deductible under this section.
(14) This section applies only in ascertaining the profits in respect of which a person is chargeable to tax under Part 4 of this Ordinance for the year of assessment beginning on 1 April 2011 and any subsequent year of assessment.

(Added 21 of 2011 s. 6)