A strategy which consists of evaluating an intellectual property right with a view to contributing to the capital of a company is quite interesting and advantageous, in particular to strengthen the equity of your company.
In this case, it is essential to take into account the taxes on capital gains, which may apply in the event of a contribution in kind of an industrial property right (an intangible asset) to a company. At least in France, the applicable tax rule is not uniform.
It first varies depending on whether it is:
- the contribution of an individual to a company or
- the contribution of a company to another company.
It also differs depending on the nature of the intangible asset. Indeed, whether it is a patent, software, a trademark, a domain name, know-how, etc., the tax rules are significantly different.
This article is not intended to replace legal advice from a tax expert. As innovation strategy consultants, with Brandon Valorisation, and patent attorneys, with Brandon IP, we have the ambition of drawing your attention to these provisions which, if not taken into account, could have heavy consequences.
– PATENT –
Contribution of a patent from a French resident to a company
In this case, taxation concerns capital gains. When an individual transfers a patent to a company in exchange for shares of the firm, this is considered a transfer of assets. In the event of a capital gain realized during this transfer, the capital gain is generally taxable. However, there is a favorable tax regime for contributions of patents to a company which allows to postpone the taxation of the capital gain until the shares received in exchange for the contribution of the patent are sold. This tax deferral applies under certain conditions, in particular the compliance with a minimum holding period.
The know-how must be evaluated precisely. An assessment by an expert is recommended to determine its value. This expert will be able to respond to the contributions auditor whose intervention is required.
Contribution of a patent from one company (based in France) to another
In this case, taxation also concerns capital gains. When a company contributes a patent to another company in the context of a partial transfer of its assets, the unrealized capital gains resulting from the contribution are due. However, a company may be exempt from corporate tax, under certain conditions which concern, among other things, the duration of holding of the shares, a minimum level of participation, etc.
The value of the patent must be determined by an expert in asset valuation, since it will affect the taxation of the transaction.
– TRADEMARK –
Contribution of a trademark from a French resident to a company
When an individual transfers a trademark to a company in exchange for shares in the company, this can be considered a transfer of assets. In the event of a capital gain realized during this transfer, the capital gain is generally taxable. However, there may be exemptions or tax deferral regimes in some cases.
It is recommended to have the trademark evaluated by an expert in asset valuation to determine its fair value.
Contribution of a trademark from one French company to another
The contribution of a trademark from one company to another one is generally subject to the tax rules applicable to a contribution of assets. When a company contributes a trademark to another company as part of an asset transfer, the unrealized gains resulting from the contribution are due. However, in certain cases, the company making the contribution may be exempt from the corporate tax on the gains. Among the conditions to be fulfilled, the contribution must be in exchange for sharesof the benefiting company, the benefiting company must keep the trademark for a minimum period, etc.
In this case, as in the other cases mentioned here, we recommend calling on a tax specialist who will be able to assist you in this process.
– SOFTWARE –
Contribution of software from a French resident to a company
When an individual transfers software to a company in exchange for company shares, this may be considered a transfer of assets. Taxation can then vary depending on several factors, including the structure of the company, the value of the software, and the way in which the contribution is made. There is a specific tax regime for contributions of software to a company which allows to defer the taxation of the capital gain until the shares received in exchange for the contribution of the software are sold. This tax deferral applies under certain conditions.
If the valuation of the software is higher than its initial acquisition price (or its carrying amount, if the software was internally developed), there may be a taxable capital gain for the individual who makes the contribution. This capital gain may be subject to capital gains tax, with specific rules depending, among other things, on the duration of holding of the software.
There are possible tax exemptions in the event of transfer of professional assets. As for the valuation of the intangible asset which must be carried out by a referenced specialist, we recommend that you call on a tax expert who will be able to support you in the optimization and securization of the contribution operation.
Contribution of software from one French company to another
When a company contributes software to another company as part of a partial contribution of asset, the software must be valued at its fair value. The benefiting company will then issue shares in exchange for this in-kind contribution.
If the transferring company realizes a capital gain when contributing the software (that is, if the value of the software is greater than its book value), this capital gain is taxable. However, a company may be exempt from corporate tax, under certain conditions which are, among other things, the duration of holding of the securities, a minimum level of participation, etc.
There are indeed specific tax exemptions for certain in-kind contribution operations. These exemptions aim to facilitate the reorganization of businesses and avoid immediate taxation.
The fair value of the software must be precisely determined by an expert in asset valuation, as it will affect the taxation of the transaction.
Here again, we recommend that you call on a tax expert who will be able to support you in optimizing and securing the contribution operation.
– KNOW-HOW –
Contribution of know-how from a French individual to a company
The contribution of know-how from an individual to a company can be made in exchange for company securities (shares). It may also be remunerated by royalties or fees depending on the way in which the contribution is structured.
The know-how must be evaluated precisely. An assessment by an expert is recommended to determine its value. The expert in question will be able to respond to the contributions auditor who will have to intervene.
If the contribution of know-how is made in exchange for securities of the company (for example, shares), this can be considered as an increase in the capital of the company. The tax consequences may vary depending on the structure of the company and the tax rules in force.
The know-how must be precisely evaluated. An assessment by an expert is recommended to determine its value. This expert will be able to respond to the contributions auditor who will have to intervene.
If the individual realizes a capital gain when contributing the know-how (that is, if the value of the know-how is greater than its historical cost), this gain may be taxable.
Here again, we recommend that you call on a tax expert who will be able to support you in the optimization and securization of the contribution operation.
Contribution of know-how from one French company to another
The contribution of know-how from one company to another company is generally considered an in-kind contribution. Know-how can take different forms, including technical knowledge, manufacturing methods, trade secrets, etc.
As with other in-kind contributions, it is essential to determine precisely the value of the know-how. An evaluation by an expert is necessary to establish this value. He will be the competent contact person with the contributions auditor.
In the case where the contributing company realizes a capital gain when providing the know-how (that is, if the value of the know-how is greater than its historical cost), this capital gain can be taxable.
There are specific tax exemptions for certain in-kind contribution operations. These exemptions aim to facilitate the reorganization of businesses and avoid immediate taxation. A tax advisor will help you with these procedures.
The know-how contribution operation must be properly documented, including the drafting of an act of contribution in kind and its registration with the tax authorities.
Our desire, as consultants in strategy and valuation of innovation, with Brandon IP, patent attorneys, is to provide you with some indications on the taxation of intangible assets, with some information useful to build up your company valuation strategy. However, please note this advice shall not be considered a legal advice relative to tax laws in France or elsewhere.
Do not hesitate to contact us to carry out your development projects through innovation.
