Newsletter
EXCESS VALUE OF INTANGIBLE ASSETS CONTRIBUTED AS EQ-UITY IS TAXABLE AS CAPITAL GAINS
In a ruling dated 1 October 2003, the Ministry of Finance (MOF) stated that from 1 January 2004, if a shareholder contributes equity to a company in the form of intangible assets (such as tech-nology), any amount by which the value as-signed to the intangible assets in the transaction exceeds the cost of acquisition of the assets is taxable as income from property transactions, and shall be declared as such by the shareholder in accordance with the Income Tax Act.
The text of related parts of two previous MOF rulings will cease to apply from 1 January 2004. These are: (1) the part of a ruling dated 3 July 1980 that reads: "When investment is made in the form of specialized technology, the shares obtained in the invested company are merely a formal representation of the specialized tech-nology concerned, and shall not be regarded as income; therefore the question of income tax does not arise"; and (2) the part of a ruling dated 12 September 1986 that reads: "At the point in time when a shareholder in a company makes an investment in the form of specialized technology, as no income arises, the question of collecting income tax does not arise. However, if the shareholder subsequently sells such shares, any amount by which their par value exceeds the cost of acquiring the technology is taxable as income from property transactions, while any amount in excess of the par value is taxable as income from securities transactions."