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MINISTRY
OF FINANCE
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THE
SOCIALIST REPUBLIC OF VIETNAM
Independence - Freedom - Happiness
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No.
37/2024/TT-BTC
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Hanoi,
May 16, 2024
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CIRCULAR
ON PROMULGATION OF THE VIETNAMESE VALUATION STANDARDS ON
VALUATION OF INTANGIBLE ASSETS
Pursuant to the Law on Prices
dated June 19, 2023;
Pursuant to Decree No.
14/2023/ND-CP, of the Government, dated April 20, 2023, defining the functions,
tasks, powers and organizational structure of the Ministry of Finance;
At the request of the Director General
of the Price Management Department;
The Minister of Finance hereby
promulgates the Circular on promulgation of the Vietnamese Valuation Standards
on Valuation of Intangible Assets.
Article 1.
Issue together with this Circular the Vietnamese
Valuation Standards on Valuation of Intangible Assets.
Article 2.
Entry into force
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2. Circular No. 06/2014/TT-BTC, of
the Minister of Finance, dated January 07, 2014, on promulgation of the
Vietnamese Valuation Standard No. 13, shall cease to be effective as of the
effective date of this Circular.
Article 3.
Implementation
1. Relevant organizations and
individuals shall be responsible for implementing the Vietnamese Valuation Standards
enclosed with this Circular.
2. Difficulties that arise during
the implementation of this Circular should be reported to the Ministry of
Finance for consideration./.
PP.
MINISTER
DEPUTY MINISTER
Le Tan Can
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ON VALUATION OF INTANGIBLE ASSETS
(Enclosed with Circular No. 37/2024/TT-BTC dated May 16, 2024 of the Minister
of Finance)
Chapter I
GENERAL PROVISIONS
Article 1.
Scope
1. This Vietnamese Valuation
Standard provides regulations and guidelines on valuation of identifiable
intangible assets in accordance with the law on prices. The valuation of
non-identifiable intangible assets shall comply with the regulations and
guidelines set out in the Vietnamese Valuation Standard on Valuation of
Enterprises.
2. Intangible assets referred to in
this Standard are identifiable intangible assets that simultaneously satisfy
the following conditions:
a) There is tangible evidence of
the existence of the intangible asset;
b) The intangible asset is capable
of generating income;
c) The value of the intangible
asset can be monetarily quantified.
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1. Valuers and valuation
enterprises providing valuation services in accordance with the law on prices.
2. Organizations and individuals
carrying out state valuation activities as prescribed by the law on prices.
3. Organizations and individuals
requesting valuation, and third parties using valuation reports under valuation
contracts (if any).
Article 3.
Interpretation of terms
For the purposes of this Vietnamese
Valuation Standard, the terms below shall be construed as follows:
1. Intangible asset means an
asset without physical form that is capable of generating rights and economic
benefits, expressed through its economic characteristics. Intangible
assets do not include cash.
2. Royalty means the amount
payable by an organization or individual for the right to use an intangible
asset to the owner of such intangible asset (for example, patent royalties,
franchise fees, or payments for mineral exploitation rights).
3. Tax benefit from amortization
means the reduction in corporate income tax resulting from recognition of
the valued intangible asset as an intangible fixed asset. Where the intangible
asset subject to valuation is recognized as an intangible fixed asset, the
taxable corporate income will be correspondingly reduced by the amortization of
that intangible fixed asset. In such case, the reduced tax payable, due
to the reduced taxable corporate income, constitutes the tax benefit from
amortization.
4. Contributory asset means
an asset used together with the asset under valuation to generate future cash
flows. Contributory assets include all current and future assets that
contribute to the generation of such future cash flows.
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Intangible assets include the
following categories:
1. Intellectual property and
intellectual property rights as prescribed by the law on intellectual property.
2. Rights that generate economic
benefits for the parties as specified in civil contracts under the law, such as
commercial rights and mineral exploitation rights.
3. Non-contractual relationships
that generate economic benefits for the parties, including relationships with
customers, suppliers or other entities, for example customer lists and
databases.
4. Other intangible assets that
satisfy the conditions prescribed in Clause 2 Article 1 of this Standard.
Article 5.
Estimation of the economic life of intangible assets
1. The economic life of an intangible
asset is influenced by legal, economic, technological and functional factors
such as: the scale and prospects of the market, scientific and technological
development, the uniqueness and distinctiveness of the intangible asset, and
the competition from similar intangible assets. The economic life may be either
finite or indefinite.
2. When estimating the economic
life, the following factors shall be taken into consideration:
a) The statutory protection period
for the intangible asset that is an intellectual property right;
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c) Court judgments or decisions of
competent authorities relating to the intangible asset subject to valuation;
d) Economic factors such as the
scale and prospects of the market for products and services associated with the
intangible asset subject to valuation;
dd) Scientific and technological
development, the emergence of similar or more efficient intangible assets
leading to functional or economic obsolescence of the intangible asset subject
to valuation, and other relevant scientific and technical factors;
e) Statistical results and analyses
(if any) related to the intangible asset subject to valuation;
g) Other relevant factors
associated with estimation of the economic life of the intangible asset subject
to valuation.
Chapter II
INCOME APPROACH
Article 6.
Application of methods under the income approach
1. The income approach includes the
following methods: the relief-from-royalty method, the excess earnings method,
and the incremental income method.
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3. The application of the income
approach in valuation of intangible assets shall comply with the provisions of
this Standard. Where not provided for in this Standard, the relevant provisions
of other Vietnamese Valuation Standards shall apply.
Article 7.
Income streams under the income approach
1. The income approach determines
the value of intangible assets based on the present value of income, cash flows
and cost savings generated by the intangible asset.
2. Intangible assets may generate
income streams through their use, ownership (e.g., through collection of
royalties), or restriction of use.
3. When valuing an intangible
asset, depending on the valuation purpose, analysis may include: income streams
from the use of the intangible asset by the user, income streams from royalties
payable to the owner of the intangible asset, or both income streams.
Article 8.
Discount rate
1. The discount rate under the
income approach must reflect the time value of money and the risks associated
with the future income from the intangible asset subject to valuation.
2. The discount rate is estimated
based on market information of similar intangible assets, which may be the
average rate of return of such assets in the market.
3. The discount rate applicable to
cash flows generated by the intangible asset subject to valuation is generally
higher than the weighted average cost of capital (WACC) (due to higher risks
involved) and lower than the internal rate of return (IRR). For intangible
assets that account for the majority of the total value of the enterprise using
such intangible assets, consideration may be given to applying the enterprise’s
WACC as the discount rate.
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1. Depending on the intended use of
the valuation results and the valuation method applied, consideration should be
given to incorporating the tax benefits from amortization into the value of the
intangible asset subject to valuation when applying the income approach.
2. Tax benefits from amortization
shall not be taken into account in the following cases:
a) The intangible asset subject to
valuation does not satisfy the conditions for recognition as an intangible
fixed asset under the law;
b) The intangible asset subject to
valuation is used by an enterprise that is exempt from corporate income tax at
the valuation date and thereafter.
3. Tax benefits from amortization
are estimated by discounting to present value the amount of tax reduced due to
amortization. The estimated amount of tax reduction must be consistent with the
amortization method applied to the intangible asset subject to valuation by the
enterprise using such asset in accordance with the law.
4. The discount rate used to
calculate the tax benefits from amortization may be considered based on:
a) The appropriate discount rate
for the enterprise using the intangible asset subject to valuation, such as
WACC;
b) The appropriate discount rate
for the intangible asset subject to valuation.
Section 1.
RELIEF-FROM-ROYALTY METHOD
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1. Under the relief-from-royalty
method, the value of an intangible asset is determined based on the present
value of royalty payments receivable by an organization or individual when
granting the right to use the intangible asset.
2. This method assumes that an
organization or individual not owning the intangible asset would have to pay a
royalty to use it. Accordingly, the value of the intangible asset is measured
by the royalties saved if the organization or individual owns the asset.
3. The relief-from-royalty method
is applied by discounting the after-tax (if any) future royalty savings to
present value.
4. Calculation of royalty payments,
taxes, maintenance costs, and other supporting expenses must be consistent.
Specifically, if the owner of the intangible asset is responsible for
maintenance costs (e.g., advertising or research and development expenses), the
royalty payments and cash flows payable for use of the intangible asset must
also take these costs into account Conversely, if maintenance costs are not
included in the royalty, such costs must also be excluded from the cash flows
payable for use of the intangible asset.
Article 11.
Information required for application of the relief-from-royalty method
1. The level of royalty or the
royalty rate shall be determined through:
a) Royalty rates of comparable or
similar intangible assets traded in the market;
b) Profit split in a hypothetical
transaction between a willing licensor of the intangible asset subject to
valuation and a willing licensee of such intangible asset in an independent,
arm’s-length transaction.
2. Transactional information of
comparable intangible assets concerning legally protected rights, as well as
information in license agreements such as royalty payments, maintenance costs
(e.g., advertising, product upgrades, quality control), commencement date, and
termination date of the license agreement.
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Section 2.
EXCESS EARNINGS METHOD
Article 12.
Content of the excess earnings method
1. The excess earnings method estimates
the value of the intangible asset subject to valuation based on the difference
in profits earned by an enterprise when using and when not using such
intangible asset.
2. Under the excess earnings
method, the value of the intangible asset subject to valuation is estimated on
the basis of the difference between the present values of two discounted cash
flow streams: one in which the intangible asset is used to generate excess
income for the entity, and one in which the entity does not use the intangible
asset.
Article 13.
Information required for application of the excess earnings method
Some or all of the following
information should be considered prior to applying the excess earnings method:
1. Expected profits, cost savings,
and future income streams generated for an enterprise when using and when not
using the intangible asset.
2. An appropriate discount rate for
projecting future income.
Section 3.
INCREMENTAL INCOME METHOD
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1. The incremental income method
determines the value of an intangible asset through the present value of cash
flows attributable to the contribution of the intangible asset subject to
valuation, after deducting the proportion of cash flows attributable to other
assets.
2. The incremental income method
shall be implemented as follows:
a) Step 1: Identify the expected
revenue streams generated from the use of the intangible asset subject to
valuation;
b) Step 2: Determine the net income
after deducting material and labor costs, depreciation (if any), selling and
administrative expenses, other expenses, and corporate income tax (if any);
c) Step 3: Determine the
contribution of contributory assets to the income derived from the use of the
intangible asset subject to valuation.
Reasonable income attributable to
contributory assets is calculated through the following steps:
(i) Identify the assets (including
but not limited to working capital) contributing to the income associated with
the use of the intangible asset subject to valuation (contributory assets);
(ii) Estimate the market value of
the contributory assets. This market value may be determined by revaluing the
residual book value against market information. Where information is
limited, adjustments to book values may be considered;
(iii) Determine the net return on
contributory assets by multiplying the value of each contributory asset by a
reasonable rate of return for that asset.
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dd) Step 5: Determine the value of
the intangible asset subject to valuation by discounting to present value the
net income attributable solely to such intangible asset (as calculated in Step
4), using an appropriate discount rate.
Article 15.
Information required for application of the incremental income method
The following information should be
considered when applying the incremental income method:
1. The cash flows generated by the
enterprise from the intangible asset subject to valuation, including both
income streams and related expenses.
2. Costs of using supporting assets
that are necessary and associated with the effective use of the intangible
asset subject to valuation.
3. An appropriate discount rate to
convert the cash flows attributable to the intangible asset subject to
valuation into present value.
4. Related costs or benefits, such
as applicable taxes on the use of the intangible asset subject to valuation.
Chapter III
COST APPROACH
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1. The cost approach includes the
replacement cost method and the reproduction cost method.
2. The application of the cost
approach in valuation of intangible assets shall comply with the provisions of
this Standard. Where not provided for in this Standard, the relevant provisions
of other Vietnamese Valuation Standards shall apply.
Article 17. Estimation
of obsolescence of intangible assets
When estimating the reduction in
value due to obsolescence of an intangible asset, the following factors should
be considered:
1. Differences in research and
development costs (primarily related to the reproduction cost method):
determined by the difference between the cost of research and development to
create the intangible asset at the valuation date compared with the cost at the
time the intangible asset was originally created.
2. Differences in operating costs:
determined by the difference between the cost of maintaining and using the
intangible asset at the valuation date compared with the cost at the time the
intangible asset was first put into use. These costs must be considered
throughout the remaining economic life of the intangible asset as of the
valuation date.
3. Economic obsolescence of the
intangible asset: determined by the difference in economic efficiency (income)
from the use of the intangible asset at the valuation date compared with the
time it was first put into use.
4. The economic life and useful
life of the intangible asset.
Chapter IV
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Article 18.
Application of the market comparison method in valuation of intangible assets
1. The market comparison method
under the market approach may be applied in valuation of intangible assets when
all of the following conditions are met:
a) There is information on
objective, arm’s-length transactions of at least three comparable assets at or
near the valuation date, but not exceeding 24 months prior to the valuation
date;
b) There is sufficient information
to adjust for quantitative differences between the asset under valuation and
the comparable assets, thereby determining an indicative price;
c) Other requirements (apart from
the minimum number of comparable assets) set out in the Vietnamese Valuation
Standard on the market approach are satisfied.
2. The application of the market
comparison method under the market approach in valuation of intangible assets
shall comply with the provisions of this Standard. Where not provided for
in this Standard, the relevant provisions of other Vietnamese Valuation
Standards shall apply.
Article 19.
Comparative factors to be considered in valuation of intangible assets
1. Rights associated with ownership
of the intangible asset.
2. Contractual terms (if any) or
agreements relating to purchase, sale, or transfer of the right to use the
intangible asset.
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4. Geographic factors or areas affecting
the use of the intangible asset.
5. Characteristics affecting the
economic life and useful life of the intangible asset.
6. Other characteristics of the
intangible asset./.