Tax Perspective on Innovative Capital: Tax Considerations for Enterprise Intellectual Property Investment

LABEL： Tax , Intellectual property ,

As more and more intellectual property rights enter the commercial field, it has become common for companies to invest in intellectual property transactions. How to reasonably plan and handle tax issues related to intellectual property investment has become one of the key issues in business and legal practice. In this regard, this article will sort out the basic principles, relevant preferential policies, and typical issues of intellectual property investment in corporate income tax, value-added tax, and stamp duty tax treatment, aiming to provide a clear tax law perspective for enterprises to optimize business planning and make reasonable use of tax policies.
1、 Tax treatment of corporate income tax for intellectual property investment

According to the Company Law of our country, the prerequisite for shareholders to use non monetary assets such as physical assets and intellectual property for capital contribution is that the relevant assets can be valued in currency, transferred in accordance with the law, and have no prohibitive provisions. Non monetary assets used as capital should be evaluated and verified for their value, and their value should not be overestimated or underestimated. [1]

In terms of corporate income tax, generally speaking, intellectual property investment is treated as tax according to the transfer of intellectual property, that is, the balance of the value of intellectual property investment minus the tax base of intellectual property is the income from the transfer of corporate property, which is included in the current taxable income of the enterprise and calculated for the payment of corporate income tax. But under certain conditions, investors have the opportunity to apply corresponding preferential policies for corporate income tax. The specific details are summarized as follows.

           

It should be noted that even if the applicable conditions of the above preferential policies are met at the same time, only one of them can be selected for application, and cannot be applied simultaneously. Among them, the preferential policies for technology transfer tax reduction and exemption can directly achieve tax reduction or exemption for enterprises, which is the most favorable; And the remaining three preferential policies are all for deferred taxation, not direct tax reduction or exemption for enterprises.
2、 How much do you know about the value-added tax issue of intellectual property investment

Enterprises investing in intellectual property usually need to calculate and pay value-added tax based on the sale of intangible assets, and the value-added tax rate is generally 6%.

If the intellectual property investment of the enterprise belongs to qualified technology transfer, it can enjoy value-added tax exemption treatment. It is worth noting that the technology transfer that can enjoy value-added tax exemption treatment here includes both the transfer of patented technology and the transfer of non patented technology. It should be noted that in terms of the preferential policies for corporate income tax and value-added tax applicable to intellectual property investment, although both apply to technology investment, there are certain differences in the scope of applicable technology.

In addition, in order to apply for value-added tax exemption treatment, the investor needs to go to the relevant science and technology department in the taxpayer's location for technology contract recognition, and keep the review opinions of the science and technology department for future reference. At present, in practice, tax authorities in most regions allow taxpayers to apply for value-added tax exemption treatment after obtaining technology contract filing, without the need to file with the competent tax authority.
3、 The issue of stamp duty on intellectual property investment is being repeatedly examined
1. There are differences in the applicable tax items for stamp duty on various technical contracts

According to the different types of technology invested, various types of technology contracts should be subject to stamp duty under the tax items of "technology contracts" and "property transfer documents" respectively. Specifically, technology transfer may involve the transfer of patent rights, patent application rights, patent implementation licenses, and non patent technology transfer. Among them, for contracts established for the transfer of patent rights and the transfer of patent implementation licenses that have already formed patents, the tax item of "property transfer documents" shall apply for taxation. For contracts established for the transfer of patent application rights and non patent technology transfer that have not yet formed a patent, the "technology contract" tax item shall apply for taxation.

Although there are differences in the stamp duty items applicable to various types of technology contracts, after the new Stamp Tax Law comes into effect on July 1, 2022, the tax rates applicable to "technology contracts" and "property transfer documents" are both 0.03%, and there is no difference in the applicable tax rates.
2. Does the investment and shareholding agreement require stamp duty to be paid

In practice, when enterprises invest in intellectual property, in most cases, the two parties do not enter into a "technology transfer contract", but rather sign an "investment and shareholding agreement". So, does the "investment and equity agreement" need to be treated as a technology transfer contract and subject to stamp duty?

There are different understandings and operations in practice regarding whether such agreements should be treated as technology transfer contracts and subject to stamp duty. Formally speaking, stamp duty is only levied on the listed vouchers, and "investment and shareholding agreements" are not included in the list. Therefore, the trading party can claim not to pay stamp duty on the relevant agreements as "technology contracts" or "property transfer documents". However, if the intellectual property investment is subject to the preferential policies of technology transfer tax reduction or deferred payment of corporate income tax for technology investment, from the perspective of transaction essence and policy consistency, we understand that the above-mentioned "investment investment agreement" should be subject to the tax items of "technology contract" or "property transfer data" according to its specific intellectual property project, and calculate and pay a stamp duty of 0.03%.
3. Stamp duty on the capital account book of the invested enterprise

For the invested enterprise, when accepting intellectual property investment, the fair value of the received intellectual property should be used as the shareholder investment amount to increase the "paid in capital" and "capital reserve". The newly added capital account book should pay stamp duty at a rate of 0.05% of the sum of the "paid in capital" and "capital reserve" mentioned above.
4、 Special attention to tax issues related to intellectual property investment
1. Tax risks related to the valuation and investment of intellectual property usage rights

In recent years, more and more regions have lifted registration restrictions on intellectual property rights investment. In addition to tax related issues related to property types and valuation similar to intellectual property ownership contributions, a common tax impact in practice is the provision of income tax for foreign companies investing in Chinese companies with intellectual property use rights. Such contributions from overseas enterprises are generally treated as a royalty income. After evaluating the intellectual property rights, the overseas enterprise will declare and pay withholding income tax to the tax authorities in the place where the income is generated (usually the location of the invested enterprise), with a usual tax rate of 10%. In cases where transactions occur between affiliated enterprises, there may also be tax risks related to transfer pricing. Especially when the valuation of intellectual property usage rights is low, or when the investment is associated with a series of authorizations, or when the usage rights are used for sub authorizations and other arrangements, there may be a possibility of being subject to tax adjustments due to unfair valuation or pricing.
2. Recognition of tax basis for intellectual property rights not reflected in the balance sheet

Due to the diverse types of intellectual property, in practice, many intellectual property rights that have not been collected in the company's balance sheet can be used to contribute to the company, such as patent usage rights, patent application rights, and patent technologies in the research stage mentioned above. Due to the fact that the above-mentioned intellectual property rights are not reflected in the company's books, it may not be possible to deduct the corresponding tax base when calculating the tax cost of corporate income tax.
3. Valuation issue of data asset investment

With the formal implementation of the Interim Provisions on Accounting Treatment of Enterprise Data Resources and the recognition of eligible data resources as intangible assets, this provides legal support for tax authorities to include data assets in non monetary asset treatment. From the current policy perspective, data assets meet the prerequisite conditions of "being able to be valued in currency", "being transferable in accordance with the law", and "having no prohibitive regulations". However, there are no clear provisions in the Company Law and relevant industrial and commercial registration levels, so the issue of data asset investment is still under discussion. However, the China National Intellectual Property Administration has successively carried out data intellectual property pilot work in Beijing, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, Shenzhen and other regions, providing data intellectual property registration services for processed and valuable data, and issuing data intellectual property registration certificates, which provides evidence of ownership for data investment. In terms of taxation, the expected practical issues may mainly lie in the following two aspects.

One is the issue of qualitative income. Although China's Enterprise Income Tax Law positively lists eight types of income, including income from the transfer of property and royalties, and has a ninth "other income" as a fallback provision, the Implementation Regulations of the Enterprise Income Tax Law also clearly define the scope of "income from the transfer of property" and "other income". Among them, "transfer of property income" includes the income obtained by enterprises from the transfer of fixed assets, biological assets, intangible assets, equity, debt and other property; Other income "includes excess income from corporate assets, deposit income from overdue packaging materials, accounts payable that cannot be paid, accounts receivable that have been processed for bad debt losses but have been recovered, debt restructuring income, subsidy income, penalty income, exchange gains, etc. [2] There is no clear policy basis for categorizing data asset contributions under the Enterprise Income Tax Law.

The second issue is asset valuation. Due to the characteristics of timeliness, replicability, and value volatility of data assets, it is difficult to effectively evaluate the fair value of relevant data assets using traditional market methods, income methods, and cost methods alone. This uncertainty in value is reflected in the differences in prices at the tax level. In cases where the tax basis for data assets is significantly low, it may lead to tax authorities questioning the reasonableness of their pricing, resulting in the risk of assessed collection. But how to determine the fair value of data assets may further generate tax enterprise differences.
4. Conclusion

As a preliminary exploration of tax treatment for innovative capital, this article only touches upon the surface of the vast issue of tax treatment for enterprises investing through intellectual property. With the deepening implementation of the innovation driven development strategy, the tax treatment of intellectual property investment has shown complex and diverse characteristics in practice. Enterprises need to pay attention to and constantly adapt to changes in tax laws and policies, actively explore and utilize tax incentives, in order to promote the effective transformation of intellectual property rights and maximize commercial value. We will continue to delve deeper into this field, providing readers with more insights into the tax treatment of innovative capital. The issues involved include but are not limited to common tax disputes related to intellectual property in emerging technology fields, tax planning in cross-border transactions, and tax compliance and risk management. We are committed to helping businesses and professionals better understand the relationship between transactions and tax laws, develop more optimized tax strategies, and achieve comprehensive utilization and effective protection of innovative capital.