Finance (No. 4) Bill

Session 2010 - 12
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Finance (No. 4) Bill

Finance (No. 4) Bill
Schedule 1 — High income child benefit charge
137

charge) is deducted from PAYE income of the payee
paid during that year,
(b)
for repayments to be made in a tax year, if and to the
extent that the payee does not object, in respect of any
amounts overpaid on account of income tax under
5
that section for that tax year, and
(c)
as to the circumstances and manner in which a payee
may object to the making of deductions or
repayments.”
      (5)
In section 685 (tax tables), in subsection (2)(b), after “2” insert “, 2ZA”.
10
      (6)
In section 717 (orders and regulations made by Treasury or Commissioners),
in subsection (4), after “companies)” insert “or to which section 681F(3)
(variation of income limit etc for high income child benefit charge: orders
increasing liability to tax) applies”.
      (7)
In Part 2 of Schedule 1 (index of defined expressions), insert at the
15
appropriate places—

“adjusted net income (in Chapter 8 of Part 10)
section 681H”

“partner (in Chapter 8 of Part 10)
section 681G”

“week (in Chapter 8 of Part 10)
section 681H”.

6     (1)
ITA 2007 is amended as follows.
20
      (2)
In section 1 (overview of the Income Tax Acts), in subsection (1)(a), after
“social security income” insert “and makes provision for the high income
child benefit charge”.
      (3)
In section 30 (additional tax), in subsection (1), after “section 809ZO (tainted
charity donations by trustees: charge to tax),” insert—
25

“Chapter 8 of Part 10 of ITEPA 2003 (high income child benefit
charge),”.
Commencement
7     (1)
The amendments made by this Schedule have effect for the tax year 2012-13
and subsequent tax years.
30
      (2)
In relation to the tax year 2012-13, references in section 681B of ITEPA 2003
(as inserted by paragraph 1) to an amount to which a person is entitled in
respect of child benefit for a week in the tax year do not include any amount
to which the person is entitled in respect of child benefit for a week
beginning before 7 January 2013.
35
      (3)
In sub-paragraph (2), “week” means a period of 7 days beginning with a
Monday.

Finance (No. 4) Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010
138

Schedule 2
Section 19

Profits arising from the exploitation of patents etc
Part 1
Amendments of CTA 2010
1     (1)
In CTA 2010, after Part 8 insert—
5
“Part 8A
Profits arising from the exploitation of patents etc
Chapter 1
Reduced corporation tax rate for profits from patents etc
357A
Election for special treatment of profits from patents etc
10
(1)
A company may elect that any relevant IP profits of a trade of the
company for an accounting period for which it is a qualifying
company are chargeable at a lower rate of corporation tax.
(2)
An election under subsection (1) is to be given effect by allowing a
deduction to be made in calculating for corporation tax purposes the
15
profits of the trade for the period.
(3)
The amount of the deduction is—

where—
RP is the relevant IP profits of the trade of the company,
MR is the main rate of corporation tax, and
20
IPR is the special IP rate of corporation tax.
(4)
The special IP rate of corporation tax is 10%.
(5)
Chapter 2 specifies when a company is a qualifying company.
(6)
Chapter 3 makes provision for determining the relevant IP profits or
relevant IP losses of a trade.
25
(7)
Chapter 4 makes provision for an alternative way of determining the
relevant IP profits or losses of a trade known as “streaming”.
(8)
Chapter 5 makes provision in relation to the relevant IP losses of a
trade.
(9)
Chapter 6 contains anti-avoidance provisions.
30
(10)
Chapter 7 contains supplementary provision.

Finance (No. 4) Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010
139

Chapter 2
Qualifying companies
357B
Meaning of “qualifying company”
(1)
A company is a qualifying company for an accounting period if—
(a)
condition A or B is met, and
5
(b)
in the case of a company that is a member of a group,
condition C is met.
(2)
Condition A is that, at any time during the accounting period, the
company—
(a)
holds any qualifying IP rights, or
10
(b)
holds an exclusive licence in respect of any qualifying IP
rights.

For the meaning of “exclusive licence”, see section 357BA.
(3)
Condition B is that—
(a)
the company has held a qualifying IP right or an exclusive
15
licence in respect of such a right,
(b)
the company has received income in respect of an event
which occurred in relation to the right or licence, or any part
of which so occurred, at a time when—
(i)
the company was a qualifying company, and
20
(ii)
an election under section 357A had effect in relation
to it, and
(c)
the income falls to be taxed in the accounting period.
(4)
A right is a qualifying IP right for the purposes of this Part if—
(a)
it is a right to which this Part applies (see section 357BB), and
25
(b)
the company meets the development condition in relation to
the right (see section 357BC).
(5)
Condition C is that the company meets the active ownership
condition for the accounting period (see section 357BE).
357BA
Meaning of “exclusive licence”
30
(1)
In this Part “exclusive licence”, in relation to a right (“the principal
right”), means a licence which—
(a)
is granted by the person who holds either the principal right
or an exclusive licence in respect of the principal right (“the
proprietor”), and
35
(b)
confers on the person holding the licence (“the licence-
holder”), or on the licence-holder and persons authorised by
it, the rights in respect of the principal right that are listed in
subsection (2).
(2)
The rights are—
40
(a)
one or more rights conferred to the exclusion of all other
persons (including the proprietor) in one or more countries
or territories, and
(b)
the right—

Finance (No. 4) Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010
140

(i)
to bring proceedings without the consent of the
proprietor or any other person in respect of any
infringement of the rights within paragraph (a), or
(ii)
to receive the whole or the greater part of any
damages awarded in respect of any such
5
infringement.
(3)
Where the licence-holder has any right within subsection (2)(b) by
virtue of any enactment or rule of law, the right is to be regarded for
the purposes of this section as conferred by the licence.
(4)
Where—
10
(a)
a company (“C”) that is a member of a group holds either a
right to which this Part applies or an exclusive licence in
respect of such a right, and
(b)
C confers on another company that is a member of the group
all of the rights held by C in respect of the invention,
15

that other company is to be treated for the purposes of this Part as
holding an exclusive licence in respect of that right.
(5)
For the purposes of subsection (4) it does not matter if the rights
conferred by C do not include the right to enforce, assign or grant a
licence of any of those rights.
20
357BB
Rights to which this Part applies
(1)
This Part applies to the following rights—
(a)
a patent granted under the Patents Act 1977,
(b)
a patent granted under the European Patent Convention,
(c)
a right of a specified description which corresponds to a right
25
within paragraph (a) or (b) and is granted under the law of a
specified EEA state,
(d)
a supplementary protection certificate,
(e)
any plant breeders’ rights granted in accordance with Part 1
of the Plant Varieties Act 1997,
30
(f)
any Community plant variety rights granted under Council
Regulation (EC) No 2100/94.
(2)
Where—
(a)
directions are in force under section 22 of the Patents Act 1977
(information prejudicial to national security or safety of
35
public) with respect to an application for a patent under that
Act, and
(b)
the person making the application has been notified under
section 18(4) of that Act that the application complies with
the requirements of the Act and the rules,
40

the person is to be treated for the purposes of this Part as if the person
had been granted the patent under that Act.
(3)
Where—
(a)
a person holds a marketing authorisation in respect of a
product in accordance with any EU legislation, and
45
(b)
the product benefits from marketing protection (see
subsection (4)) or data protection (see subsection (5)),

Finance (No. 4) Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010
141


the person is to be treated for the purposes of this Part as having been
granted a right to which this Part applies in respect of the product.
(4)
For the purposes of this section a product benefits from marketing
protection if—
(a)
the product benefits from marketing protection by virtue of
5
Article 14.11 of Regulation (EC) No 726/2004 of the European
Parliament and of the Council of 31 March 2004 laying down
Community procedures for the authorisation and
supervision of medicinal products for human use, or
(b)
any of the following prohibitions is in force—
10
(i)
the prohibition on placing on the market a generic of
the product imposed by Article 10.1 of Directive
2001/83/EC of the European Parliament and of the
Council of 6 November 2001 on the Community code
relating to medicinal products for human use,
15
(ii)
the prohibition imposed by Article 8.1 of Regulation
(EC) No 141/2000 of the European Parliament and of
the Council of 16 December 1999 on orphan medicinal
products, and
(iii)
the prohibition on placing on the market a generic of
20
the product imposed by Article 13.1 of Directive
2001/82/EC of the European Parliament and of the
Council of 6 November 2001 on the Community code
relating to veterinary medicinal products.
(5)
For the purposes of this section a product benefits from data
25
protection if—
(a)
the product benefits from the data exclusivity conferred by
Article 10.5 of Directive 2001/83/EC of the European
Parliament and of the Council,
(b)
the prohibition on referring to the results of tests or trials in
30
relation to the product imposed by Article 74a of that
Directive is in force, or
(c)
data relating to the product benefits from data protection
under Article 59 of Regulation (EC) No 1107/2009 of the
European Parliament and of the Council of 21 October 2009
35
concerning the placing of plant protection products on the
market.
(6)
The reference to data in subsection (5)(c) does not include a study
necessary for the renewal or review of a marketing authorisation
granted in respect of the product in accordance with Regulation (EC)
40
No 1107/2009.
(7)
In this section—
“European Patent Convention” means the Convention on the
Grant of European Patents,
“rules” means rules made under section 123 of the Patents Act
45
1977,
“specified” means specified in an order made by the Treasury,
and
“supplementary protection certificate” means a certificate
issued under—
50

Finance (No. 4) Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010
142

(a)
Council Regulation (EC) No 469/2009 of the
European Parliament and of the Council of 6 May
2009 concerning the supplementary protection
certificate for medicinal products, or
(b)
Regulation (EC) No 1610/96 of the European
5
Parliament and of the Council of 23 July 1996
concerning the creation of a supplementary
protection certificate for plant protection products.
(8)
The Treasury may by order—
(a)
amend this section so as to make provision about the
10
circumstances in which a product benefits from marketing or
data protection for the purposes of this section;
(b)
make such provision amending any reference in this section
to EU legislation as appears to them appropriate in
consequence of any EU legislation amending or replacing
15
that EU legislation.
(9)
An order made under this section may make any incidental,
supplemental, consequential, transitional or saving provision,
including provision amending or modifying this Part.
357BC
The development condition
20
(1)
A company meets the development condition in relation to a right if
condition A, B, C or D is met.

Section 357BD (meaning of “qualifying development”) applies for
the purposes of this section.
(2)
Condition A is that—
25
(a)
the company has at any time carried out qualifying
development in relation to the right, and
(b)
the company has not ceased to be, or become, a controlled
member of a group since that time.
(3)
Condition B is that—
30
(a)
the company has at any time carried out qualifying
development in relation to the right,
(b)
the company has ceased to be, or become, a controlled
member of a group since that time,
(c)
the company has, for a period of 12 months beginning with
35
the day on which it ceased to be, or became, a controlled
member of the group, performed activities of the same
description as those that constituted the qualifying
development, and
(d)
the company remains a member of that group or (as the case
40
may be) does not become a controlled member of any other
group.
(4)
Condition C is that—
(a)
the company is a member of a group,
(b)
another company that is or has been a member of the group
45
has carried out qualifying development in relation to the
right, and

Finance (No. 4) Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010
143

(c)
that other company was a member of the group at the time it
carried out the qualifying development.
(5)
Condition D is that—
(a)
the company is a member of a group,
(b)
another company that is or has been a member of the group
5
has carried out qualifying development in relation to the
right,
(c)
that other company (“T”) or, where another member of the
group begins to carry on the trade which T carried on
immediately before becoming a member of the group, either
10
or both of those companies have, while carrying on that trade
as a member of the group, performed activities of the same
description as those that constituted the qualifying
development, and
(d)
those activities of those companies, taken together, have been
15
performed for a period of 12 months beginning with the day
on which T became a member of the group.
(6)
For the purposes of conditions A and B, a company becomes a
controlled member of a group at any time if—
(a)
another company (“P”) either becomes the holder of a major
20
interest in the company, or begins to control the company, at
that time, and
(b)
immediately before that time the company was not
associated with P or with any company associated with P
immediately before that time.
25
(7)
For the purposes of conditions A and B, a company ceases to be a
controlled member of a group at any time if—
(a)
every other company which immediately before that time
held a major interest in, or controlled, the company ceases to
do so, and
30
(b)
as a result the company ceases to be associated with any of
those companies.
(8)
Where—
(a)
a company ceases to be a controlled member of a group at any
time, and
35
(b)
at that time the company holds a major interest in, or
controls, any other company,

that other company is to be treated for the purposes of conditions A
and B as also having ceased to be a controlled member of the group
at that time.
40
(9)
In subsections (6) and (7) “associated” is to be read in accordance
with section 357GD(3).
(10)
The following provisions apply for the purposes of subsections (6) to
(8)—
section 472 of CTA 2009 (meaning of “control”), and
45
sections 473 and 474 of CTA 2009 (meaning of “major interest”).
(11)
A company that meets the development condition in relation to a
right by virtue of the performance of the activities mentioned in