What is the Valuation of Trademark and Taxation?

About Trademark

  • A mark that shall include symbols, color, shape, packaging the goods shall be called a Trademark which surrounds the capability of geographical indication and differentiating the goods and services of one person from other.
  • Trademark can also be called a set of rights that allow the use of such marks of the owner and disallow other parties to use.
  • It is also considered as a commercial and economic tool that is endorsed with the intention to build the brand value of the business.

Valuation of Trademark

  • This is a practice having great relevance as there is a rising number of cases of value of intangible assets like Intellectual Property because it is considered higher than tangible assets.
  • For example, in the year 2006-07 in the case of Coca-Cola, the balance sheet equity was valued at a sum of $124.42 billion, and on the other side; the market capitalization was at a massive that is $124.42 billion.
  • Generally, the valuation of the trademark is done on three grounds namely:
  • Transactional purposes and excluding taxation matters
  • Purpose of financial accounting
  • Purpose of Taxation

Methods included in Trademark Valuation

There are three method that are used for valuation of trademark:

  • Cost Approach Method
  • In this method, the valuation shall involve an assessment of the total cost incurred in the creation and development of the trademark and will reflect the minimum value of the trademark.
  • However, this method is not always effective as there is a wide variety of economic benefits generated from trademarks that are not properly represented.
  • Market Approach Method
  • This method is applied to analyze and compare the similar value of trademarks
  • Value of similar trademarks such as those businesses dealing in similar goods that have a license to obtain the value of the evaluated trademark.
  • Income Approach Method
  • This method is said to be most effective for evaluating a trademark as it works to reach estimation by the formulating and calculation of the present value of the income received in the future that is forecasted to generate during the course of remaining useful life.

The use of Cross Border in Intellectual Property Rights

  • One of the most emerging issues in Intellectual Property Rights (IPR) with regard to taxation of trademarks is cross-border use.
  • This shall include Multinational Companies (MNC) granting their intellectual property to the subsidiaries which are located in a different country.
  • In return, it may or may not further sub-license the Intellectual Property to the third parties working locally.
  • So, in this case, the owner company of Intellectual property shall be established in a low tax region and levy royalties against the subsidiaries located in high tax regions in a future endeavour to avoid large tax cuts.
  • In one of the case, Glaxo Smith Kline holdings, the income was increased by the IRS (U.S.A) of the subsidiary of Glaxo Smith Kline holdings after keeping in mind the value of intangibles owned by the parent company that was set up in London (U.K).
  •  It is also necessary to note that many jurisdictions need companies to ensure that charged royalties do not exceed the respective length rate i.e royalty rate shall be charged in controlled transactions only.
  • In another case of Maruti Suzuki India Ltd v. Income Tax Commissioner 2016, the Delhi High Court gave its ruling on the aspects of transfer pricing in the cases where the promotional efforts of an entity associated will increase the value of trademark entity that is owned in the eye of law.
  • The question that arises herein was that the income gained by the trademark is to give to the Intellectual Property owner that is registered in a foreign country or affiliated entity (registered in India).
  • It was held that if advertising, marketing and promotional exceed the ordinary expenditure that might be borne by an entity in the comparative situation, the Intellectual Property owner is under the obligation to reasonably provide compensation of the same situation and estimation of the appropriate rate of royalty becomes important and critical.
  • In addition, the abovementioned judgment denotes the ‘bright-line test’ that was given by the United States Tax Court. This implies that if the investment of the licensee is more than the routine expenditure generated out of it and the entity would be deemed to carry on economic ownership of economics over Intellectual Property.

Income from Business and Capital gains

  • In a case of Income Tax Commissioner v. M/S Mediworld Publications Pvt Ltd 2011, the Delhi High Court held that income generated out of the transfer of intangible assets such as Trademark and Copyright shall be considered as ‘Capital gains’ and not ‘Income from the business’ and therefore will be taxable.
  • The Court also made clear that ‘Capital Asset’ under section 2(14) of the Income-tax Act, 1961 and is inclusive of Intellectual Property and also be considered as an intangible asset that serves as a model for earning profit. Further, it was held that the sale of intangible assets such as trademark and their sale would be included under Section 28 of the Income Tax Act, 1961.


  • The valuation of the trademark is on the rise and has a dilemma in terms of its taxation. The rapid change in technology and globalization has led to vast unpredictability and tough to accurately measure intangible assets.
  • The disparities that lay in different jurisdictions make it or more complicated for entities having engagement worldwide to reach a conclusion while ensuring compliance with tax regulations.
  • Such deviation may also lead to double taxations imposed on business entities and regulations concerning the issue in the present situation.

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