For many years, the valuation of intangible assets has been one of the most problematic areas for valuers in Russia and was largely unregulated (or rather, regulated by generic valuation standards). As transactions involving intangible assets are becoming increasingly important for modern economies and the value of intangible assets, due to their very nature, is largely subjective, the commercialisation of intangible assets requires adequate and reasonable valuation standards. Realising the growing importance of this issue, the regulator has started to fill this gap. On 22 June 2015, the Ministry for Economic Development adopted federal valuation standards for intangible assets and intellectual property (“FSO No. 11”).
FSO No. 11 will apply to members of Russian self-regulated valuation associations when they value any intangible assets, such as:
- exclusive intellectual property rights;
- any other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields (e.g. artist resale royalty rights and access rights);
- contractual rights; and
Among other requirements, FSO No. 11 establishes a sequence of actions for valuers to follow when reviewing the market condition to determine the value of the intangible asset. It also sets valuation methods for these assets and the applicable criteria (yield, cost, comparative approaches) and specifically defines how to assess goodwill.
FSO No. 11 will come into force after the repeal of a number of old valuation standards and the entry into force of Orders No. 297-299 of the Ministry for Economic Development which were adopted last May to update the general principles of valuation by self-regulated valuers. In the meantime, parties to a transaction involving intangible assets can choose to apply the new standards voluntarily.
We believe market players involved in the acquisition of rights to various types of intellectual property or contributing these rights to the charter capital of joint ventures in Russia will actively require an independent valuation to be carried out in accordance with the new standards. Even though these standards are only mandatory for members of Russian self-regulated valuation associations, they are likely to be used by in-house accountants and tax advisors in the preparation of financial statements (which can be even before the standards come into force).
The adoption of valuation standards specific to intangible assets and intellectual property should stimulate intellectual property transactions in the Russian market.