Amortization of the Value Assigned on the Trademarks

May 20, 1988 BIR RULING NO. 211-88 29 (f) 206-88 211-88 Gentlemen : This refers to your letter dated May 13, 1988 requesting reconsideration of BIR Ruling No. 29(f)-000-00-206-88 dated May 12, 1988 to the effect that the value assigned on the trademarks which is computed on the basis of future sales cannot be discounted to its present value at the time of acquisition and cannot be amortized for tax purposes over the average remaining lives of the different trademarks purchased; and that the cost of the different formulae cannot likewise be amortized over the (a) remaining life of the trademarks purchased or (b) the expected period within which your client purposes to continue manufacturing said products using the said formulae on the ground that said intangible properties can be subject to amortization. In reply thereto, I have the honor to inform you that intangibles, the use of which in the trade or business is definitely limited in duration, may be the subject of a depreciation allowance. Examples are patents, copyrights and franchises. Intangibles, the use of which in the business or trade is not so limited, will not usually be a proper subject of such an allowance, if, however, an intangible asset acquired through capital outlay is known from experience to be of value in the business for only a limited reasonable certainty, such intangible asset may be the subject of a depreciation allowance provided the facts are fully shown in the return or prior thereto to the satisfaction of the Commissioner of Internal Revenue. (Sec. 107 Income Tax Regulations) Such being the case, the value assigned on the trademarks which is computed on the basis of future sales can be discounted to its present value at the time of acquisition and can be amortized for tax purposes over the average remaining lives of the different trademarks purchased. Moreover, the cost of the different formulae can be amortized over the (a) remaining life of the trademarks purchased or (b) the expected period within which your client proposes to continue manufacturing said products using the said formulae. cdtech In view thereof, BIR Ruling No. 29(f)-000-00-206-88 dated May 12, 1988 is hereby modified insofar as Item Nos. 2 and 4 are concerned. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner