Patenting costs accounting in the profit tax - the RF Ministry of Economic Development initiative

On 29 November 18th meeting of the Commission on Modernization and Technological Development of Russia’s Economy was held. The meeting focused on the issues of normative and legal regulation of innovative activity.

Elvira Nabiullina, the RF Minister for Economic Development, made presentation at the meeting of the Commission. In her presentation Ms. Nabiullina set forward a number of "suggestions on improvement of conditions for innovations". Among other initiatives – include patenting costs (including international) in the expenditure list on R&D for taxation purposes.

This suggestion raises questions. Accomplished R&D works with an outcome for which a taxpayer plans to provide legal protection by way of getting exclusive rights are accounted in the tax base of the profit tax in a manner stipulated by paragraph 5 Article 262 of the RF Tax Code. According to the Tax Code in case R&D operating expenses result in obtaining by an organization of exclusive rights on the results of intellectual activity are considered intangible assets, then they are subject to depreciation in compliance with paragraphs 2 and 5 Article 258 of the RF Tax Code.

Patenting costs in reality represent expenses on payment of patent fees in compliance with the tariffs set by "Provision on patent and other duties for legally significant activities regarding patent for an invention, useful model, production piece, with a trade mark and service mark state registration  and granting of exclusive rights on appellations of origin as well as with state registration of transition of exclusive rights to other individuals and agreements of ownership for these rights", approved by the RF Government decree of 10 December 2008 No. 941.

At the same time, in compliance with paragraph 3 Article 257 of the RF Tax Code, the cost of intangible asset created by proper organization is determined as a sum of real expenses on its creation (including intangible costs, labor costs, cost of services of outside organizations, patent fees resulting from obtaining patents).

Thus, patenting costs in compliance with effective law are already being accounted in the tax base on profit tax in the cost of intangible asset which is subject to depreciation. It is unclear will the mentioned MED’s initiative result in the ban on accounting of patenting costs in the cost of intangible assets. Lack of such ban will lead to doubling of patenting costs accounting.

М.P. Goldin – legal consultant of Expertise and Normative Legal Acts Department