TAX LAW STRATEGY

Patents and more generally franchises, concessions or licenses are depreciable on a straight line basis by apportioning the capital cost of each property over the life remaining thereon at the time the cost was incurred. If a patent, at the time it was purchased, had ten years to live before falling into the public domain, then, the purchaser will be permitted to take an allowance representing 10% of his capital cost every year for the next ten years. The inventor of a newly obtained patent could amortize his cost by taking a depreciation representing 1/17 of his cost for the following 17 years.

The franchises, concessions and licenses can be considered inter alia as franchises, concessions and licenses of patents, copyrights, trade-marks and industrial designs. The sale of a patent or its concession under license will have, for the parties concerned, tax implications not to be neglected. The sale of a patent can give rise to a capital gain and to recapture of capital allowance. Under special circumstances, the sale of a patent can generate business income. The criterias to be used to determine if a sale of a patent generates a capital gain or business income.