Value and valuation of Intellectual Property – analysis against the background of EU law and Polish law

Data publikacji: 21 marca 2025 r.

Intellectual property (IP) is playing an increasingly important role as a component of business value. Modern companies base their operations on intangible assets such as patents, trademarks, copyrights or trade secrets. Proper valuation of intellectual property plays an important role both in shaping business strategy and in transaction processes – especially mergers and acquisitions, as well as in technology licensing. Proper estimation of IP value also affects tax and investment aspects. For this reason, companies must pay special attention to the analysis of their intangible assets in order to fully use their potential. This raises questions about how to effectively value IP and how EU and national regulations address this issue.

The importance of Intellectual Property valuation

Intellectual property, as an intangible part, does not have a physical form, but can still generate significant revenues for the company. IP valuation is key in various areas of business activities, such as:

• Mergers and acquisitions – Determining the market value of patents, trademarks, copyrights or technologies affects the valuation of the company as a whole. High IP value may justify a price premium in an acquisition transaction or provide a basis for negotiating payment terms. In addition, verification of the IP status, its legal protection and potential risks related to infringement is a key element of the due diligence process. diligence in the acquisition process.
• Optimization of tax processes – IP valuation affects the amount of depreciation, tax costs and the transfer of income between related entities. Reliable valuation of intellectual property is important in shaping transfer prices – thanks to it, you can avoid allegations related to incompatible tax optimization, the basis of which is specified in the Regulation of the Minister of Finance of August 30, 2023 amending the Regulation on information on transfer prices in the field of corporate income tax (Journal of Laws item 1895).
• Licensing and Selling IP Assets – Intellectual property rights are tradable, meaning that companies can sell or license the use of patents, trademarks, copyrights, and technologies. Determining the market value of IP is key to determining the amount of royalties and modeling their structure.
• Risk and investment management – The value of intellectual property can affect a company’s ability to obtain financing, its credibility with investors and protection against IP infringements. Today, intellectual property constitutes a significant part of the value of companies, so accurately estimating its impact on profitability is a very important factor.

Changes in the economy and their impact on IP

Over the last decade, a fundamental change has taken place in the way the economy functions. Classic tangible assets are gradually giving way to digital and intangible assets. The competitive advantage of companies is largely built on innovation, new technology and unique solutions, which makes the role of intellectual property greater than ever before.

IP valuation is particularly important at certain moments, e.g. during commercial transactions, changes in the company structure or when planning a financial strategy.

Challenges in Valuing Various Intellectual Property Rights

Valuing IP rights is a significant challenge because IP categories differ in terms of their legal, economic and market characteristics.

1. In the case of industrial property rights, the difficulty arises when determining the market value – the value of such rights depends on their economic usefulness and the level of legal protection. In addition, there are differences in the period of protection – for example, patent protection is limited in time (usually 20 years), while trademarks can be renewed indefinitely. Technological progress also means that some rights may lose value faster.

• Copyrights, as another category of IP rights, also have certain limitations in their valuation. Due to their specific connection with the reception of the society, their future revenues are quite uncertain. They depend to a large extent on the interest of the recipients, which is difficult to predict. The complexity of copyrights also makes it difficult to adopt a single method of valuation.

• The difficulty in valuing an invention (patent) results from problems related to its economic benefits – the value of an invention depends on the scale of its implementation and the competitive advantage it provides. Maintaining a patent also means annual costs for the company. In addition, there is a risk of the patent being invalidated by competition if it challenges its novelty and inventiveness, which may lead to a loss of value.

• A utility model has a limited ability to generate revenue because it protects technical solutions with a lower degree of innovation than patents, which affects its commercial value. A utility model is also characterized by a relatively short term of protection – it is a maximum of 10 years, which limits the potential financial benefits.

• Industrial design is a very fluid and changing IP right. As it is mainly used in the fashion industry, it is highly dependent on current market trends, which means its value can quickly decrease. Additionally, there is also competition in assessing the uniqueness of a design – there may be similar designs on the market, which makes them difficult to value.

• Geographical indications and their value are strongly linked to the reputation of the region they come from – this is what determines the demand for products from that area. There is also no possibility of individual trade in goods, because geographical indications are the collective property of producers from a given region, which makes it difficult to value them as assets of an individual company.

• The integrated circuit topography is by far the most technical of all the IP rights listed. This means that a reliable valuation can only be made by someone with specialist knowledge. This right also has a short protection period of 10 years from the date of filing, which, combined with its specialist nature, affects the valuation.

IP valuation and European Union recommendations

The valuation of intellectual assets in the European Union is a key element of their effective management, as highlighted in the Commission Recommendation (EU)        2023/499 of 1 March 2023 on the Code of Conduct on the management of intellectual assets to valorise knowledge in the European Research Area (OJ EU L 69, 2023, p. 75).

Approaches to intellectual property valuation:

According to the recommendations of the European Commission, organizations should adopt a transparent and non-discriminatory approach to the IP valuation process. The choice of the appropriate method depends on the purpose of the valuation and the characteristics of the given asset. The most commonly used approaches include:

• Cost approach – It is based on the analysis of the costs incurred to create, reproduce or replace a given intangible asset. This approach takes into account both past and future costs and expenses related to maintaining and protecting IP. This method is particularly useful in the case of assets for which there are no comparable market transactions. It also includes the costs of research and development and possible marketing activities increasing the value of IP. However, this method has certain limitations. Difficulties may arise in determining the costs of reproducing unique innovations that were the result of many years of research and experience.
• Income approach – It is based on the analysis of future economic benefits resulting from the possession of a given intellectual property right. The basis for valuation is the discounted value of future income that can be obtained from the IP during a given period of use. It is mainly used for assets that generate stable and predictable streams of income, such as patents, licenses, trademarks, copyrights or technologies with an established position on the market. Within this approach, various methods are used, such as the DCF method ( discounted cash flow ), based on the forecast of cash flows generated by the IP and their discounting to the present value. The biggest limitation of the income approach is the accuracy of the valuation, because it depends on the reliability of financial forecasts, which can be difficult in the case of dynamic technology markets.
• Market approach – This involves determining the value of IP by analyzing market transactions for similar assets. It takes into account the actual prices obtained for intellectual property rights in similar market conditions. It works best in industries where IP rights are frequently traded, such as the pharmaceutical or entertainment sectors. The key challenge of this method is the availability of comparable data, because many transactions in the IP market are conducted on confidential terms.

Each of these valuation methods has its advantages and limitations. In practice, combinations of different approaches are often used to obtain the most accurate value of an asset.

Detailed recommendations of the European Commission:

In Recommendation 2023/499, the European Commission emphasises the need to:

• Defining valuation objectives based on different types of value – such as organizational, cultural, economic, environmental or social value.
• Selecting the appropriate valuation method – in accordance with international standards, adapted to the purpose and scope of the valuation.
• Investing in the development of competencies – related to IP valuation through training and employing specialists.
• Collaboration with partners – to establish a common approach to the valuation of intellectual assets created within the framework of joint research projects.

Compliance with these recommendations aims to ensure consistency and transparency in the process of valuing intellectual property across the European Union, which promotes better commercialisation of research results and strengthens the competitiveness of the European economy.

Valuation and amortization of intangible assets in the light of the Accounting Act and tax regulations

Valuation and amortization of intangible assets (INA) are key elements of accounting that affect the reliability of financial statements of economic entities. They are specified in the Act of 29 September 1994 on Accounting ( i.e. Journal of Laws of 2023, item 120, as amended ).

Valuation of intangible assets:

Intangible assets and legal rights require their initial value to be determined, which is done according to principles analogous to those applied to fixed assets. The method of determining the initial value depends on the method of acquiring the given asset or its entry into the taxpayer’s assets.

If intangible assets were acquired for a fee, their initial value is the purchase price. This includes the amount due to the seller, reduced by the accrued VAT (if deductible). In addition, the purchase price includes all costs directly related to the purchase and adaptation of the asset for use. These may include, for example, transport, insurance, assembly, installation or start-up costs. Additionally, the initial value also includes other expenses, such as notary fees, stamp fees, commissions, exchange rate differences or interest on loans and credits – provided that they have been accrued up to the moment the intangible asset is put into use.

When a company acquires positive goodwill, its initial value is defined as the cost of production. It is calculated as the difference between the purchase price of a specific company (or its organized part) and the lower fair (market) value of the acquired net assets.

If intangible assets were acquired free of charge, for example by way of a gift, inheritance or other form of transfer without compensation, their initial value is determined based on the market value on the date of acquisition. An exception is a situation in which the transfer agreement indicates a different, lower value – then this is taken into account as the initial value.

When intangible assets are contributed to the company in the form of a non-cash contribution (contribution in kind), their initial value is determined according to the value applicable on the date of the contribution in kind. However, it should be remembered that in such a case this value cannot be higher than the market value of the given asset.

Determining the initial value of intangible assets depends on the method of their acquisition. It is crucial to take into account all costs related to their acquisition and adaptation for use, while maintaining accounting principles and tax regulations. It is also important that the initial value of intangible assets does not increase as a result of their improvement.

Amortization of intangible assets:

In accordance with tax law, intangible assets and fixed assets are subject to depreciation, which means that their initial value is gradually included in the costs of business activity through depreciation write-offs. The depreciation process begins on the first day of the month following the month in which the asset was entered into the register of fixed assets and intangible assets.

Taxpayers have the option of making depreciation write-offs according to various schedules – they can be calculated in equal installments monthly, quarterly or as a lump sum at the end of the tax year. Regardless of the method chosen, depreciation is continued until the sum of the depreciations made equals the initial value of the asset. In practice, this means that a company that has entered intangible assets into the records can reduce its tax base by gradually including the value of these depreciations in the costs of obtaining income.

The amount of depreciation charges depends on three main factors: the initial value of the asset, the selected depreciation method and the frequency of depreciation. Every entrepreneur who has intangible assets is obliged to independently determine the principles of their depreciation, which includes choosing the method, setting the depreciation schedule and setting the appropriate depreciation rate. Making this decision before the depreciation process begins allows the company to effectively manage costs and optimize its tax policy.

Although entrepreneurs have some freedom in determining depreciation rates, tax law introduces restrictions in the form of minimum depreciation periods for specific categories of intangible assets. These minimum periods are:

• 24 months – for licenses and sublicenses for computer programs, as well as for copyrights,
• 24 months – for film screening rights and radio and television broadcasting rights,
• 36 months – for costs incurred for completed development work,
• 60 months – for other intangible assets.

The application of minimum depreciation periods is intended to standardize the approach to accounting for costs in business activities and to ensure that intangible assets are accounted for in a manner consistent with accounting principles and tax regulations. Although entrepreneurs can adjust depreciation rates to their own needs, they must comply with the applicable regulations regarding the minimum depreciation period.

Activation of development costs and their depreciation

The issue of development work is also included in the Act of 29 September 1994 on Accounting (Journal of Laws of 2023, item 120, as amended), but these regulations are not complete.

The Act allows only completed development work to be included in the balance sheet, which raises a number of practical problems, including:

• Definition of development work – the Act lacks precise provisions, which leads to inconsistent interpretations. The definition used in the literature is that contained in Commission Regulation (EU) 2023/1803 of 13 August 2023 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council (OJ EU. L. of 2023, No. 237, p. 1, as amended). It defines development work as “the practical application of research discoveries or achievements of other knowledge in planning or designing the production of new or significantly improved materials, devices, products, technological processes, systems or services that take place before commercial production or their use begins”
• The time of commencement of cost capitalisation – difficulty in determining when expenses can be classified as assets. The key issue is to determine when incurred expenses cease to be merely operating costs and begin to be treated as an asset of the enterprise. This depends on several conditions: control over the asset, reliable determination of its value and future economic benefits.

IAS 38 distinguishes between research and development, of which only the latter can be capitalized. Development costs can be capitalized provided that the following criteria are met:

• Possibility of reliable cost estimation.
• Documented technical suitability and implementation decision.
• Expected coverage of costs by revenues.

In practice, conducting R&D work is associated with great uncertainty as to future benefits, which is why in most companies , research costs are not capitalized. Moreover, the Act does not specify the method of recognizing costs during the implementation of development work – different approaches are indicated (e.g. “intangible assets under construction” or “active accruals”).

Goodwill and negative goodwill

Goodwill:

• It arises when the purchase price of the acquired entity or part of it exceeds the fair value of the net assets that were acquired.
• It reflects intangible assets such as reputation, know-how or customer relationships that were not previously recorded on the balance sheet.
• It is not treated as a separate asset, but is only disclosed as a result of an acquisition transaction.

Negative goodwill:

• It occurs when the purchase price of an entity is less than the fair value of its net assets.
• It may indicate errors in valuation or suggest that the transaction does not meet the equivalence of benefits principle.
• Before its recognition, a detailed analysis is necessary, including:

checking whether the value of the acquired assets has not been overstated,

verification whether liabilities have been underestimated or significant post-merger integration costs have been omitted.

• Although negative goodwill does not formally constitute taxable income, it affects tax settlements by reducing the initial value of acquired assets, which are subject to depreciation.

The issue of goodwill and badwill is also the subject of disputes in administrative proceedings, because the issue of taxation of these values raises doubts among both entrepreneurs and administrative authorities. However, the case law of administrative courts has developed the view that goodwill is not a thing or a property right, and therefore cannot be the subject of taxation upon the sale of an enterprise (Judgment of the Regional Administrative Court in Gdańsk of 21 June 2022, I SA/Gd 261/22, LEX No. 3362473. And Judgment of the Supreme Administrative Court of 28 June 2018, II FSK 1932/16, LEX No. 2531541.)

Tax on income from qualified intellectual property rights (IP Box) – principles and application

IP Box is regulated by the Corporate Income Tax Act of 15 February 1992 ( Journal of Laws of 2023, item 2805, as amended ).

It introduces preferential taxation of income derived from qualified intellectual property rights. This mechanism allows for the application of a reduced 5 percent tax rate to income derived from qualified IP rights. A taxpayer may take advantage of the relief if they meet the condition of conducting research and development (R&D) activities. This applies both to situations where the taxpayer independently created the qualified IP right and when they acquired it but incur the costs of its further development or improvement.

This solution operates in many countries, such as Great Britain, the Netherlands, Ireland, Luxembourg and France, and its aim is to increase the attractiveness of Poland as a place for conducting innovative business activities.

Subjective and objective scope:

IP Box preferences are available to taxpayers who generate income from intellectual property rights created, developed or improved through research and development activities. Qualified rights include, among others:

• Patents
• Protection rights for utility models
• Rights from registration of industrial designs
• Rights from registration of integrated circuit topography
• Rights from registration of medicinal products
• Exclusive plant variety rights
• Copyright for computer programs.

Basic principles of taxation:

The tax base is the qualified income obtained in the tax year, calculated as the product of income and an indicator covering the actual costs incurred by the taxpayer for the development of a given intellectual asset. The income covered by the IP Box includes:

• License fees
• Income from the sale of qualified intellectual property rights
• Income from a qualified right included in the selling price of a product or service
• Compensation for infringement of intellectual property rights

Record-keeping obligations:

Taxpayers using IP Box are required to maintain detailed accounting records that allow for the identification of revenues and costs related to each qualified intellectual property right. In the event that it is impossible to precisely assign revenues to individual rights, it is possible to use group methods for a given category of products or services.

Nexus indicator in the context of IP Box:

Polish regulations are in line with OECD BEPS (Base Erosion and Profit Shifting) guidelines, particularly in terms of the nexus approach . This means that the scope of the tax relief depends on the actual expenditure on R&D activities that led to the generation of income. Taxpayers who want to use the IP Box must keep detailed accounting records that allow for linking income to eligible R&D costs.

Nexus indicator can be discussed based on three cost aspects:

Costs financed by subsidies and the nexus indicator:

Costs covered directly by subsidies do not constitute costs of obtaining revenues, which results from tax regulations. Nevertheless, they can be included in the calculation of the nexus indicator, because they were actually incurred by the taxpayer conducting R&D activities. Such an interpretation is consistent with the purpose of the IP Box, allowing entities financed from public funds or by investors to benefit from tax preferences. A different interpretation would lead to unequal treatment of taxpayers, which would be contrary to the purpose of the IP Box regulations.

Own labor costs and the nexus indicator:

The costs of one’s own work in a sole proprietorship cannot be included in the costs of obtaining income. On the other hand, the remuneration of a spouse, minor children or partners in a partnership may be recognized as costs of obtaining income. The entrepreneur’s own work cannot be included in the calculation of the nexus indicator, because it is not associated with an actual expense. However, in practice, this usually does not negatively affect the amount of the nexus indicator, because individuals conducting research and development activities usually generate qualified IP themselves and do not acquire it from related entities. Therefore, the nexus indicator for such taxpayers is usually 1 or close to 1.

Contribution of qualified IP as a contribution in kind and the nexus indicator:

Qualified IP may be made as a non-cash contribution to a company or partnership in exchange for shares or stocks.

For the contribution to be effective, the qualified IP must be:

1. admitted to legal circulation,
   1. transferable,
   1. have an economic value that can be assessed,
   1. recorded in the company’s books as assets.

The income from a contribution in kind is determined based on the value of the contribution in the company agreement, statute or other documentation. If this value is lower than the market value, the income is determined according to the market price. The nexus indicator should take into account the value of the contribution in kind determined in accordance with the arm’s length principle, especially if the contribution was made by a related party.

However, there are intellectual properties that are not eligible for IP Box relief.

The Supreme Administrative Court pays special attention to advertising. It is recognized that income from advertising cannot be considered qualified income from intellectual property. Regardless of whether the advertising appears on its own or as a component of a product or service (Judgment of the Provincial Administrative Court in Gliwice of 12 September 2023, I SA/ Gl 1596/22, LEX No. 3608611. And Judgment of the Supreme Administrative Court of 25 October 2024, II FSK 819/23, LEX No. 3810881.)

The IP Box mechanism provides significant support for innovative companies, reducing tax burdens related to the commercialization of company results. However, taking advantage of the relief requires meeting a number of formal conditions, including proper financial documentation and meeting requirements for research and development activities.

Valorization of remuneration for the use of intellectual property

In the context of IP valuation, it is also worth paying attention to the mechanisms for indexation of remuneration for the use of intellectual property. Polish law contains a number of regulations in this area.

Increase in remuneration for the use of an invention or design:

Act of 30 June 2000 – Industrial Property Law ( Journal of Laws of 2023, item 1170). Provides for the possibility of increasing the remuneration of the creator of an invention, utility model or industrial design. According to art. 23 of this Act, if the entrepreneur achieves greater benefits from the implementation of the patented solution than originally expected, the creator may demand an increase in remuneration. Such a mechanism is intended to ensure a fair share of the creator in the market success of his innovation, as well as to encourage further inventive activity.

Remuneration of creators of copyrighted works:

Act of 4 February 1994 on Copyright and Related Rights (Journal of Laws of 2025, item 24, as amended) Art. 43 of this Act states that unless the contract provides otherwise, the author has the right to remuneration for the transfer of property rights or the granting of a license. Moreover, this remuneration must be fair and adjusted to the scale of use of the work and the benefits resulting from it.

In addition, Article 45 of this Act indicates that if the contract does not contain different provisions, the creator has the right to separate remuneration for each field of exploitation. This means that if the work is used in different forms, e.g. both in print and digital form, the author should receive remuneration for each of these uses separately.

The importance of regulations for creators and entrepreneurs:

The regulations on remuneration for intellectual property aim to maintain a balance between the interests of creators and economic entities. On the one hand, they ensure appropriate remuneration for authors and inventors, and on the other – they enable entrepreneurs to make fair use of innovative solutions and works. Mechanisms for the indexation of remuneration, such as the possibility of increasing remuneration in the event of higher entrepreneurial profits or the right to separate remuneration for each field of exploitation, strengthen the protection of creators’ rights and encourage further development of the creative and innovative sector.

Summary

Intellectual property (IP) is a key element of corporate value, influencing business strategies, transactions, risk management and investments. IP valuation, although complicated due to the intangible nature of assets, is essential in many business processes. The European Union promotes transparent and consistent valuation methods to support innovation and economic competitiveness.

In Poland, the valuation of intangible assets is regulated mainly by the Accounting Act, and the IP Box mechanism offers preferential taxation of income from intellectual property.

In summary, proper IP management and valuation is crucial to maximising business value, supporting innovation and protecting creators’ rights, which requires compliance with both national and EU regulations.