Deductibility of Depreciation Allowance

September 6, 1988 BIR RULING NO. 433-88 29-f 211-88 433-88 Gentlemen : This refers to your letter dated June 20, 1988 requesting confirmation of your opinion to the effect that the acquisition cost of the formula and trademarks purchased by your client, Nicolas Kiwi Philippines, Inc. can be amortized or can be subject to a depreciation allowance; and that said depreciation allowance is deductible for income tax purposes. It is represented that your client is a corporation organized and existing under Philippine laws; that it is engaged in the business of manufacturing household cleaning, car cleaning, shoe care and pharmaceutical products; that to expand its product lines, it purchased the formula and trademarks of Rogin E and Extacel from Asia Health Systems, Inc.; that the life of the certificate of registration of the trademarks is 20 years while that of the patent is 17 years; and that your client is amortizing the acquisition cost of the formula and trademarks of the aforementioned products over a uniform period of 20 years. In reply thereto, I have the honor to inform you that your opinion is hereby confirmed. Intangibles, the use of which in 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 period, the length of which can be estimated from experience with 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. (Section 107, Income tax Regulations) Such being the case, and considering that the use in the business of the formula and trademarks purchased by your client is limited in duration, the same may be the subject of a depreciation allowance. Moreover, said depreciation allowance is deductible for income tax purposes under Section 29(f) of the Tax Code, as amended. cdta Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner