Amendment of DIPN 49

In 1983, the IRD imposed 16E to provide deduction for the capital cost of acquiring patents, trademarks or designs. In 2010-2011 Budget, the Financial Secretary proposed an extension of tax deduction of covering capital expenditure incurred on the purchase of copyrights, registered designs and registered trademarks. The above proposal was passed the Legislative Council (Inland Revenue (Amendment) (No. 3) Ordinance 2011) ("the 2011 Amendment Ordinance"). There were three major amendments as follow:

Removal of "used in Hong Kong"

Under the new legislation, capital expenditure on the purchase of patent rights and rights to any know-how would be deductible irrespective of whether they are used in Hong Kong so long as other deduction conditions are satisfied.

Limit the sales proceeds that should be chargeable to tax

Before the amendment, the full amount of sales proceeds would be chargeable to tax upon sale of the patent rights and rights to know-how for which deductions have been previously allowed. Section 16E was amended to limit that the sales proceeds of patent rights and rights to know-how to be brought to tax should not exceed the aggregate tax deductions previously allowed.

Specify deductible expenditures (legal expenses and valuation fees)

Section 16E(1A) was added to provide explicitly that deduction would be available under section 16E(1) for legal expenses and valuation fees incurred in connection with the purchase of patent rights and rights to any know-how.

For the details of the amendment, please refer to the Inland Revenue Website announcement as
http://www.ird.gov.hk/eng/pdf/e_dipn49.pdf