Purchase an individual unique formula of producing

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Company A wants to purchase an individual's unique formula of producing a product to make more profit, however, the individual (say, Peter) is not willing to relinquish complete control. He suggests an alternative: he will continue to own the patent, but will grant company A an exclusive licence to manufacture the product. The licence will cost $300,000 and will be valid for 5 years. Additionally, company A will hire Peter to provide technical expertise and supervise the manufacturing process. They agree to pay him a salary of $60,000 per year. A condition of Peter's employment contract is that (barring serious misconduct), his employment cannot be terminated whilst company A holds the exclusive licence to manufacture the product. 

Discuss the deductibility of these payments incurred above. (i.e., company A is able to claim a deduction on....the reason is....)

Reference no: EM131488525

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