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When preparing such a campaign you use not only your own employees, but also the services of a marketing agency or an external specialist. The activity usually involves the work of a broad team of people, and in the process not only texts and photographs, but also videos are created. These videos are placed on the company’s website and are available on the internet passively or actively as part of marketing campaigns. Sellers can use them at the customer or at an expo. They are often provided for use to group companies. The video can contain a real picture of things and people, but virtual reality can also be used to create it. The creator may not necessarily be the director and cinematographer, but may be a graphic artist. What is the correct way to address this situation in terms of taxes and accounting?
Total costs incurred to achieve marketing goals are very diverse. Some outputs are usable in the short term, but often are used in the long term. When assessing the costs incurred, we must decide whether these are the current costs of the current period, costs associated with multiple years, or whether a long-term usable asset arises. We primarily assess marketing expenses as a cost of the current period, but we often recognise the audio-visual work as an intangible asset.
The definition of an audio-visual work and the licence for its use is contained in the Copyright Act. An audio-visual work is a work created by the organisation of works of audio-visual use, whether processed or unprocessed, consisting of a series of recorded images associated with the impression of movement, which may or may not be accompanied by sound, that is visually perceptible and, when accompanied by sound, audibly perceptible as well. If the cost of its creation exceeds CZK 60,000, we consider it in accounting as long-term intangible assets. The depreciation rules are determined by the Income Tax Act. Audio-visual works are depreciated evenly without interruption at least for 18 months, software 36 months and other intangible assets (e.g. licences) 72 months. The amendment to the 2017 Act brought a positive change in the depreciation method by inserting the word “at least”, so intangible assets can be depreciated longer. The key feature for recognising whether to include intangible assets as an audio-visual work or licence is the scope of the rights of use of the work at our disposal. The authorship and copyright ownership of the work is non-transferable; the author grants the right to use the work. This use can be significantly limited or, on the contrary, exclusive and unlimited. Therefore, if we hold unlimited licensing rights to a work, the work is made directly for us and can be used without limitation, as well as provided and presented. In that case we will include this work as an intangible asset – an audio-visual work. Where the right of use is limited to a fixed period, the annual depreciation is calculated as the share of the entry price and the agreed time. If the length of use of the work is not limited, although the right of use is not exclusive, but the owner (author) of the work may provide the same work to other persons, for example other companies in the group, the immaterial property is licensed with a write-off period of at least 72 months. The requirement to classify the asset in the correct depreciation group from a specialised workplace applies in this case.
In the real world, many costs for the creation of individual audio-visual works do not exceed CZK 60,000 in one accounting period and will be a current cost in the period. Some will exceed this amount and will be charged as the acquisition of an intangible asset. If audio-visual works are used for more than a year, you can consider deferring the costs to work incurred. The reason for deferring these costs could be a financially significant one-off investment in this area, such as the creation of a new website or a major marketing campaign. On the contrary, the continuous production and use of short audio-visual works below the purchase price limit of CZK 60,000 will be accounted as a current cost in the current year. You will recall that the acquisition cost of an intangible asset also includes the costs associated with the acquisition, i.e. the cost of the share of work done by own workers, the making of drawings, photographs or texts used in the production of an audio-visual work. Conversely, consulting costs, how to advertise the business and its products, where to place audio-visual works and possibly securing such placements are also current costs of the current period.
The applicability and affordability of technical means of producing audio-visual works enables companies to produce their own videos and to continuously use them not only for their marketing but also as product instruction manuals or for simulating faults and procedures for repairing machinery. It may be asked whether this is still an audio-visual work or software. It is therefore appropriate to define the rules for accounting these costs within the enterprise’s internal procedures and to consult with a tax advisor about the tax implications.