In a very important decision dated December 5, 1995, the Paris Administrative Court of Appeal acknowledged that intangible assets of an on-going business can be amortised. According to the authorities, the intangible assets of an on-going business cannot be amortised in accordance with Article 38 sexies of Annexe 3 of the French Tax Code, with any depreciation only being recorded by means of a provision.

In this particular case, a company acting as a property manager acquired a portfolio of management contracts on several buildings. This portfolio, which was an element of its on-going business, constituted an intangible fixed asset of said company. The company amortised 20% of this amount as it considered that it would depreciate in value. During an audit, the tax authorities challenged the deductibility of such depreciation and this view was upheld by the Paris Administrative Court in a decision dated January 3, 1993.

The Court overruled this decision, considering that " intangible fixed asset may give rise (...) to amortisation if, in normal circumstances, it is likely that, upon its creation or its acquisition by the company, the asset will depreciate, that is that its beneficial impact on the business activity will come to an end".

This decision is likely to have an impact on corporate accounting practices with respect to the amortisation of intangible fixed assets in the drawing up of corporate accounts. Indeed, companies which are able to amortise items of their on-going business do not generally do so, owing, in particular, to the highly dissuasive tax rules which have prevailed until now.

This decision by a tax judge may therefore encourage companies to adopt a bolder approach and, in particular, prompt them to amortise their intangible fixed assets, whether or not they are protected by law, over a variable period of time depending on the circumstances of each case.

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