Trademark valuation for business in the EU

The value of an intellectual property asset is essentially determined by its ability to exclude competitors from a particular market. One of the main roles in this process is played by trademark valuation. While legal law provides exclusivity or the right to exclude, economic law is based on exclusivity of use, that is, the ability to control the use of an intellectual property asset. For an intellectual property asset, in our case a trademark, to have quantifiable value, it must:

• bring measurable economic benefit to its owner/user.
• increase the value of other assets with which it is associated.

In order to take into account the indicators of the value of a trademark, it is necessary to assess the trademark value in order to put the intangible assets of the business on the balance sheet, and also establish the market value.

Intellectual Property Management

Leading international companies are moving towards centralizing the ownership and management of intellectual property for operational reasons. Tax implications are taken into account when determining the most efficient strategy.

Transfer pricing, capital gains and tax depreciation in different jurisdictions can significantly affect the attractiveness of alternative options. Companies with experience ensure that ownership (both economically and legally) of trademarks in growing markets is in place before they become valuable.

Financial transfers and transfer pricing mechanisms that are not well supported can lead to punitive disputes with tax authorities if the intellectual asset is not properly valued.

Accounting for intangible assets

Managing an intangible portfolio is an important aspect of intellectual property management. Recognition of the growing share of intellectual property assets in a company’s total market value has prompted a change in accounting practices.

Thus, the community began to account for intellectual property assets (hereinafter referred to as IP) in financial statements. Historically, accounting practices did not recognize the separability of intellectual property assets from other forms of intangible assets and, therefore, intellectual property assets were not included on company balance sheets.

However, the International Accounting Standards Board (IASB) now recognizes acquired and identifiable intangible assets (i.e., IP assets) and requires that all acquired IP assets be recognized as assets, separate from goodwill, on the balance sheet of the business acquiring the IP Assets. For this purpose, an assessment of the value of the trademark is certainly necessary.

Trademark valuation before purchasing it

When acquiring a trademark, an assessment of the intellectual property is carried out as for the initial assessment, as well as periodic tests (targets) for impairment of the derived values, which must be included in the balance sheet.

The purpose of valuation is to establish the value of an IP assets by calculating the cost of developing and possibly registering a similar (or exact) trademark i.e. the IP asset internally or externally. This assessment aims to determine the value of an IP asset at a particular point in time by aggregating the direct and opportunity costs associated with creation and development, and taking into account the future obsolescence of the IP assets.

Intangible assets

Thus, the company’s balance sheet includes 3 main classes of assets: current; fixed assets; intangible. Intangible assets are identified as non-monetary assets without physical substance. Intangible assets include all types of formal intellectual property rights. The assessment of intangible assets for the purpose of placing on the balance sheet of a company in the EU is carried out in accordance with the following standards:

• International Valuation Standards (IVS), particularly IVS 210 (International Valuation Standards (IVS), in particular IVS 210) on intangible assets;
• International Accounting Standards (IAS), particularly IAS 38 (International Financial Reporting Standards (IAS), in particularIAS 38 for intangible assets and 36 for impairment;
• International Financial Reporting Standards (IFRS), particularly IFRS 3 (International Financial Reporting Standards (IFRS), in particularIFRS 3 on business combinations;
• IFRS for small and medium businesses

EU trademark Tax Requirements

The tax authorities of the European Union countries, in their regulations, in cases where there is registration but no intangible assets on the balance sheet, refer to REGULATION (EU) 2017/1001 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 June 2017 on the European Union trade mark (hereafter – Regulation).

Yes, Art. 5 of the Resolution clearly indicates that a trademark is an object of property.

Any natural or legal person, including authorities established under public law, may be the proprietor of an EU trade mark. (Any natural or legal person, including bodies established under public law, can be the owner of an EU trade mark.)

Сlause 1 art. 9 of the Resolution indicates that

The registration of an EU trade mark shall confer on the proprietor exclusive rights therein. (Registration of an EU trademark gives the owner exclusive rights to it.)

Paragraph (b) Art. 4 Regulations

Trade mark heaving being represented on the Register of European Union trade marks (‘the Register’), in a manner which enables the competent authorities and the public to determine the clear and precise subject matter of the protection afforded to its proprietor. (Торговая марка is presented in the Register of Trademarks of the European Union (the “Register”) in such a way as to enable the competent authorities and the public to determine the clear and precise subject matter of the protection granted to its owner.)

Conclusions

Thus, the tax authorities, checking the EU Trademark Register, guided by the above international standards and Directives regulating their activities, check the presence on the balance sheet of intangible assets of the company, in the territory of the EU country, objects of intellectual property rights registered in the EU, in particular, their annual depreciation and payment relevant taxes in cases of licensing agreements. To analyze a specific situation regarding the assessment of a trademark and other objects of intellectual property rights in the EU, as well as directly to order an assessment, please contact us using the methods convenient for you indicated on the website.