Circular No. 37/2024/TT-BTC Issuing the Vietnamese Valuation Standards on Valuation of Intangible Assets

CIRCULAR
Issuing Vietnamese Valuation Standards on
Valuation of Intangible Assets

Pursuant to the Law on Prices dated June 19, 2023,

Pursuant to Decree No. 14/2023/NĐ-CP dated April 20, 2023, issued by the Government, stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

At the proposal of the Director of the Price Management Department,

The Minister of Finance issues this Circular on issuing Vietnamese Valuation Standards on Valuation of Intangible Assets.

Article 1. This Circular promulgates Vietnamese Valuation Standards on Valuation of Intangible Assets.

Article 2. Effective Date

1. This Circular takes effect from July 1, 2024.

2. Circular No. 06/2014/TT-BTC of the Minister of Finance dated January 7, 2014, promulgating Vietnamese Standard on Valuation No. 13 shall be repealed from the date this Circular takes effect.

Article 3. Implementation Organization

1. Organizations and individuals related to this matter are responsible for implementing the Vietnamese Valuation Standards issued together with this Circular.

2. In the course of implementation, if there are any difficulties, organizations and individuals are requested to promptly report to the Ministry of Finance for research and resolution.

These Vietnamese Valuation Standards prescribe and guide real estate valuation when conducting valuation according to the laws on prices. These Vietnamese Valuation Standards do not apply to cases of land valuation according to the laws on land.
ON THE VALUATION OF INTANGIBLE ASSETS

(Attached to Circular No. 37/2024/TT-BTC dated May 16, 2024 of the Minister of Finance)

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

1. These Vietnamese Valuation Standards stipulate and guide the valuation of identifiable intangible assets when valuing according to the laws on prices. The valuation of unidentifiable intangible assets shall be carried out in accordance with the provisions and guidance set forth in the Vietnamese Valuation Standards on Business Valuation.

2. The intangible assets referred to in these standards are identifiable intangible assets that simultaneously meet the following conditions:

a) There is tangible evidence of the existence of the intangible asset;

b) It has the ability to generate income from the intangible asset;

c) The value of the intangible asset can be quantified in monetary terms.

Article 2. Applicability

1. Developable real estate is land intended for construction or land with structures that can be renovated or demolished to construct buildings for optimal and most effective use.

2. Organizations and individuals conducting state valuation activities in accordance with the laws on prices.

Article 4. Approaches and Methods of Real Estate Valuation

Article 3. Explanation of Terms

In these Vietnamese Valuation Standards, the following terms are understood as follows:

1. Intangible asset is an asset without physical form but capable of generating economic rights and benefits, manifesting itself through economic characteristics. Intangible assets do not include cash.

2. Intangible asset usage fee is the amount of money that an organization or individual using the intangible asset must pay to the owner of the intangible asset to obtain the right to use it (for example, usage fees for patents, payments for franchise rights, payments for mineral exploitation rights).

3. Tax benefit from depreciation is the portion of corporate income tax reduced due to the intangible asset being recorded as an intangible fixed asset. In cases where the intangible asset subject to valuation is recorded as an intangible fixed asset, the corresponding portion of the income subject to corporate income tax will be reduced in line with the depreciation of the intangible fixed asset. At that time, the tax benefit resulting from the reduction in taxable income is the tax benefit from depreciation.

4. Contributing asset is an asset used together with the asset being valued to generate future cash flows. Contributing assets include all current and future assets contributing to the generation of these future cash flows.

Article 4. Classification of Intangible Assets

Intangible assets include the following types:

1. Intellectual property and intellectual property rights as prescribed by laws on intellectual property.

2. Economic benefits rights for parties as specifically provided in civil contracts under the provisions of the law, such as commercial rights, mineral exploitation rights.

3. Non-contractual relationships that provide economic benefits to the parties, relationships with customers, suppliers, or other subjects, such as customer lists, databases.

4. Other intangible assets that satisfy the conditions stipulated in Clause 2, Article 1 of this standard.

Article 5. Estimation of the Economic Useful Life of Intangible Assets

1. The economic useful life of intangible assets is influenced by legal, economic, technological, functional, and economic factors such as: the scale and prospects of the market, the development of science and technology, the uniqueness and distinctiveness of the intangible asset, competition from similar or more efficient intangible assets. The economic useful life may be a limited or unlimited period of time.

2. When estimating the economic useful life, the following factors should be considered:

a) The legal protection period for intangible assets that are intellectual property rights;

b) Provisions in civil contracts as prescribed by law related to the intangible asset to be appraised;

c) Decisions of courts or competent authorities concerning the intangible asset to be appraised;

d) Economic factors such as the scale and prospects of the product and service markets associated with the intangible asset to be appraised;

đ) The development of science and technology, the emergence of similar or more efficient intangible assets, leading to the obsolescence of the functions and economic usefulness of the intangible asset to be appraised; other relevant scientific and technical factors;

e) Statistical and analytical results (if available) related to the intangible asset to be appraised;

g) Other relevant factors related to the estimation of the economic useful life of the intangible asset to be appraised.

Chapter II

INCOME APPROACH

Article 6. Application of Methods Under the Income Approach

1. The income approach includes methods: The Excess Earnings Method, The Relief-from-Royalty Method, and The With-and-Without Method.

2. When applying methods under the income approach, it is necessary to consider conducting sensitivity analysis to examine and analyze changes in the appraisal result when changing the value of certain parameters for each appraisal case.

3. The application of the income approach in the appraisal of intangible assets shall be carried out in accordance with the provisions of this valuation standard. In cases not provided for in this standard, the provisions of other Vietnamese valuation standards shall apply.

Article 7. Income Streams in the Income Approach

1. The income approach determines the value of intangible assets through the present value of income streams, cash flows, and cost savings generated by the intangible assets.

2. Intangible assets can generate income streams through the use of intangible assets, ownership of intangible assets (for example, through the collection of fees for using intangible assets), or restrictions on the use of intangible assets.

3. When conducting the appraisal of intangible assets, depending on the purpose of the appraisal, it may involve analyzing: income streams from the use of intangible assets by users of intangible assets, income streams from collecting fees for using intangible assets by owners of intangible assets, 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 future income from the intangible assets to be appraised.

2. The discount rate can be estimated through market information on similar intangible assets, which may include the average return rate of such assets in the market.

3. The discount rate for cash flows generated by the intangible assets to be appraised is usually higher than the weighted average cost of capital (WACC) (due to higher risks) but lower than the internal rate of return (IRR). For intangible assets that account for a majority of the total value of the enterprise using those assets, the enterprise's WACC may be considered for use as the discount rate.

Article 9. Application of Tax Benefits from Depreciation in the Appraisal of Intangible Assets Using the Income Approach

1. Based on the expected appraisal results and the appraisal method applied, tax benefits from depreciation should be considered when determining the value of the intangible assets to be appraised using the income approach.

2. Tax benefits from depreciation shall not be taken into account in the following cases:

a) The intangible assets to be appraised do not meet the conditions to be recognized as intangible fixed assets according to the provisions of the law;

b) The intangible assets to be appraised are used by an enterprise exempted from corporate income tax at the time of and after the appraisal.

3. The tax benefit from depreciation is estimated by discounting the value of the tax reduction due to depreciation to present value. The amount of tax reduction estimated must be consistent with the depreciation calculation method for the intangible assets to be appraised as applied by the enterprise using those assets based on the provisions of the law.

4. The discount rate used to calculate the tax benefit from depreciation may be determined based on:

a) An appropriate discount rate for the enterprise using the intangible assets to be appraised, such as WACC;

b) An appropriate discount rate for the intangible assets to be appraised.

Section 1

THE METHOD OF PRE-USAGE OF INTANGIBLE ASSETS

Article 10. Content of the Pre-Usage Method of Intangible Assets

1. Under the pre-usage method of intangible assets, the value of the intangible asset is calculated based on the present value of the usage cash flow received by organizations or individuals when allowing the use of the intangible asset.

2. The pre-usage method assumes that an organization or individual not owning the intangible asset would have to pay to use it. Therefore, this method calculates the value of the intangible asset through estimating the savings in usage payments if the organization or individual owned the intangible asset.

3. The pre-usage method is applied by converting future usage cash flows into present value, less taxes (if applicable).

4. Calculations of usage cash flows, taxes, maintenance costs, and other supporting costs must be consistent. Specifically, if an organization or individual owning the intangible asset is responsible for paying maintenance costs (such as advertising costs or research and development costs), then the usage payment and the cash flow paid for using the intangible asset must also take these costs into account. Conversely, if maintenance costs are not included in the usage payment, then these costs must be excluded from the cash flow paid for using the intangible asset.

Article 11. Information required to apply the income approach for intangible assets

1. The level of income from the use of intangible assets or the ratio of income from the use of intangible assets is determined through:

a) The ratio of income from the use of intangible assets of comparable or similar intangible assets with market transactions;

b) The allocation of profits in a hypothetical transaction between a willing licensor of the intangible asset to be appraised and a willing licensee of the intangible asset to be appraised in an independent and objective transaction.

2. Transaction information on similar assets regarding rights protected by law, information in contracts for the licensing of intangible assets such as income from the use of intangible assets, costs required to maintain (such as advertising, product upgrades, quality control), usage date, contract termination date.

3. Other relevant information for applying the income approach for intangible assets.

Section 2

THE EXCESS PROFITS METHOD

Article 12. Content of the excess profits method

1. The excess profits method estimates the value of the intangible asset to be appraised based on the difference between the profits obtained by a business when using and not using the intangible asset.

2. In the excess profits method, the value of the intangible asset to be appraised is estimated based on the difference in the present value of two discounted cash flows in the case where the intangible asset to be appraised is used to generate superior income for the subject and in the case where the subject does not use the intangible asset to be appraised.

Article 13. Information required to apply the excess profits method

Some or all of the following information should be considered before applying the excess profits method:

1. Expected profits, cost savings, and future income streams generated for a business when using and not using the intangible asset.

2. An appropriate discount rate to forecast future income.

Section 3

THE ADDITIONAL INCOME METHOD

Article 14. Content of the additional income method

1. The additional income method determines the value of intangible assets through the present value of cash flows believed to arise from the contribution of the intangible asset to be appraised after excluding the proportion of cash flows arising from the contributions of other assets.

2. The additional income method is carried out as follows:

a) Step 1: Determine the expected revenue streams related to the use of the intangible asset to be appraised;

b) Step 2: Determine net income after deducting raw material and labor costs, depreciation expense (if any), selling and administrative expenses, other expenses, corporate income tax (if any);

c) Step 3: Determine the contribution of other assets to the portion of income related to the use of the intangible asset to be appraised.

Reasonable income for contributing assets is calculated through the following specific steps:

(i) Identify the assets (including but not limited to working capital) that contribute to the portion of income related to the use of the intangible asset to be appraised (contributing assets);

(ii) Estimate the market value of the contributing assets to the income of the enterprise. This market value can be determined based on a revaluation of the book value and comparison with market information. In cases of limited information, adjustments may be made according to the book value;

(iii) Determine the net income of the contributing assets based on a reasonable profit margin and the value of the contributing assets, specifically multiplying the value of each contributing asset by its reasonable return on investment;

d) Step 4: Determine the portion of net income generated solely from the intangible asset to be appraised by excluding from the net income stream the amount of capital allocated to other assets (including the contribution of contributing assets calculated at Step 3 and the anticipated purchase of new fixed assets during the forecast period of future cash flows), while adding back the depreciation of contributing fixed assets to obtain the net cash flow generated from the intangible asset to be appraised;

đ) Step 5: Determine the value of the intangible asset to be appraised by using an appropriate discount rate to bring the net income generated solely from the intangible asset to be appraised (calculated at Step 4) to the present value.

Article 15. Information Required for Applying the Excess Earnings Method

The following information should be considered when applying the excess earnings method:

1. Cash flows generated by the intangible asset under evaluation, including both income streams and costs associated with the intangible asset under evaluation.

2. Costs of using auxiliary assets necessary and associated with the effective use of the intangible asset under evaluation.

3. An appropriate discount rate to convert the present value of the intangible asset under evaluation.

4. Related costs or benefits, such as tax rates applicable to the use of the intangible asset under evaluation.

Chapter II

APPROACH FROM COSTS

Article 16. Application of Methods Belonging to the Approach from Costs

1. The approach from costs includes the replacement cost method and the reproduction cost method.

2. The application of the approach from costs in the valuation of intangible assets shall be carried out in accordance with the provisions of this valuation standard. In cases not provided for in this standard, other Vietnamese valuation standards shall apply.

Article 17. Estimating the Depreciation Value of Intangible Assets

When estimating the portion of the value reduced due to depreciation of intangible assets, the following factors should be considered:

1. Research and development cost differences (mainly related to the reproduction cost method): determined through the difference between the costs incurred to research and develop the intangible asset at the time of valuation compared to the time of creation of the intangible asset under valuation.

2. Operating cost differences: determined through the difference between the maintenance and usage costs of the intangible asset at the time of valuation compared to the time it was first put into use. These costs must be calculated over the remaining economic life of the intangible asset from the date of valuation.

3. Economic obsolescence of the intangible asset: determined through the economic efficiency (income) difference from the use of the intangible asset at the time of valuation compared to the time it was first put into use.

4. Economic life and effective life of the intangible asset.

Chapter IV

APPROACH FROM THE MARKET

Article 18. Application of the Comparative Method in Valuing Intangible Assets

1. The comparative method in the market approach shall be applied in valuing intangible assets when the following conditions are met simultaneously:

a) There is information on at least three independent transactions involving comparable assets at or near the valuation date but not more than 24 months from the valuation date;

b) There is sufficient information to adjust quantitative differences between the asset under valuation and comparable assets, thereby determining the indicative price;

c) Other requirements (other than the minimum number of comparable assets) set forth in the valuation standard regarding the market approach are met.

2. The application of the comparative method belonging to the market approach to valuing intangible assets shall be carried out in accordance with the provisions of this valuation standard. In cases not provided for in this standard, other Vietnamese valuation standards shall apply.

Article 19. Factors to be considered when appraising intangible assets

1. Rights related to the ownership of intangible assets.

2. Terms in contracts (if any) or agreements relating to the purchase, sale, or transfer of usage rights.

3. The industry sector in which the intangible asset is being utilized.

4. Geographic and regional factors affecting the use of intangible assets.

5. Characteristics influencing the economic life and effective life of intangible assets.

6. Other characteristics of intangible assets...

MINISTRY OF FINANCE