SCHEDULE 2 continued PART 1 continued

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For the meaning of “routine deductions”, see sections 357CJ and 357CK.

Step 2

Multiply that amount by 0.1.

Step 3

Calculate X% of the amount given by Step 2.

“X%” is the percentage given by Step 2 in section 357C(1).

(2) In a case where—

(a) the company (“C”) is a member of a group,

(b) another member of the group incurs expenses on behalf of C,

(c) had they been incurred by C, C would have made a deduction in respect of the expenses in calculating the profits of the trade for the accounting period, and

(d) the deduction would have been a routine deduction,

C is to be treated for the purposes of subsection (1) as having made such a routine deduction.

(3) Where expenses are incurred by any member of the group on behalf of C and any other member of the group, subsection (2) applies in relation to so much of the amount of the expenses as on a just and reasonable apportionment may properly be regarded as incurred on behalf of C.

357CJ Routine deductions

(1) For the purposes of section 357CI “routine deductions” means deductions falling within any of the Heads set out in—

(a) subsection (2) (capital allowances),

(b) subsection (3) (costs of premises),

(d) subsection (5) (plant and machinery costs),

(e) subsection (6) (professional services),

(f) subsection (7) (miscellaneous services).

This is subject to section 357CK (deductions that are not routine deductions).

(2) Head 1 is any allowances under CAA 2001.

(3) Head 2 is any deductions made by the company in respect of any premises occupied by the company.

(4) Head 3 is any deductions made by the company in respect of—

(a) any director or employee of the company, or

(b) any externally provided workers.

(5) Head 4 is any deductions made by the company in respect of any plant or machinery used by the company.

(6) Head 5 is any deductions made by the company in respect of any of the following services—

(a) legal services, other than IP-related services;

(b) financial services, including—

(i) insurance services, and

(ii) valuation or actuarial services;

(d) any other consultancy services.

(7) Head 6 is any deductions made by the company in respect of any of the following services—

(a) the supply of water, fuel or power;

(b) telecommunications services;

(d) postal services;

(e) the transportation of any items;

(f) the collection, removal and disposal of refuse.

(8) In this section—

“externally provided worker” has the same meaning as in Part 13 of CTA 2009 (see section 1128 of that Act),
“IP-related services” means services provided in connection with—

(a)

any application for a right to which this Part applies, or

(b)

any proceedings relating to the enforcement of any such right,
“premises” includes any land,
“telecommunications service” means any service that consists in the provision of access to, and of facilities for making use of, any telecommunication system (whether or not one provided by the person providing the service), and
“telecommunication system” means any system (including the apparatus comprised in it) which exists for the purpose of facilitating the transmission of communications by any means involving the use of electrical or electro-magnetic energy.

(9) The Treasury may by order amend this section.

357CK Deductions that are not routine deductions

(1) For the purposes of section 357CI a deduction is not a “routine deduction” if it falls within any of the Heads set out in—

(a) subsection (2) (loan relationships and derivative contracts),

(b) subsection (3) (R&D expenses),

(d) subsection (5) (R&D -related employee share acquisitions).

(2) Head 1 is any debits which are treated as expenses of the trade by virtue of —

(a) section 297 of CTA 2009 (debits in respect of loan relationships), or

(b) section 573 of CTA 2009 (debits in respect of derivative contracts).

(3) Head 2 is—

(a) the amount of any expenditure on research and development in relation to the trade for which an additional deduction for the accounting period is obtained by the company under Part 13 of CTA 2009, and

(b) the amount of that additional deduction.

(4) Head 3 is any allowances under—

(a) Part 6 of CAA 2001 (research and development allowances), or

(b) Part 8 of CAA 2001 (patent allowances).

(5) Head 4 is the appropriate proportion of any deductions allowed under Part 12 of CTA 2009 (relief for employee share acquisitions) in a case where—

(a) shares are acquired by an employee or another person because of the employee’s employment by the company, and

(b) the employee is wholly or partly engaged directly and actively in relevant research and development (within the meaning of section 1042 of CTA 2009).

(6) In subsection (5) “the appropriate proportion”, in relation to a deduction allowed in respect of an employee, is the proportion of the staffing costs in respect of the employee which are attributable to relevant research and development for the purposes of Part 13 of CTA 2009 (see section 1124 of that Act).

“Staffing costs” has the same meaning as in that Part (see section 1123 of that Act).

(7) Subsections (5) and (6) of section 1124 of CTA 2009 apply for the purposes of subsection (5)(b) as they apply for the purposes of that section.

(8) The Treasury may by order amend this section.

Election for small claims treatment

357CL Companies eligible to elect for small claims treatment

(1) A company may elect for small claims treatment for an accounting period if condition A or B is met in relation to the accounting period.

(2) Condition A is that the aggregate of the amounts of qualifying residual profit of each trade of the company for the accounting period does not exceed £1,000,000.

(3) Condition B is that—

(a) the aggregate of the amounts of qualifying residual profit of each trade of the company for the accounting period does not exceed the relevant maximum, and

(b) the company did not take Step 6 in section 357C(1) or 357DA(1) for the purpose of calculating the relevant IP profits of any trade of the company for any previous accounting period beginning within the relevant 4-year period.

(4) In subsection (3)(b) “the relevant 4-year period” means the period of 4 years ending immediately before the accounting period mentioned in subsection (3)(a).

(5) If the company has no associated company in the accounting period, the relevant maximum is £3,000,000.

(6) If the company has one or more associated companies in the accounting period, the relevant maximum is—

where N is the number of those associated companies in relation to which an election under section 357A has effect for the accounting period.

(7) For an accounting period of less than 12 months, the relevant maximum is proportionately reduced.

(8) Any amount of qualifying residual profit of a trade of the company that is not greater than nil is to be disregarded for the purposes of this section.

(9) Sections 25 to 30 (definition of “associated companies”) have effect for the purposes of this section.

357CM Small claims amount

(1) This section applies where a company elects for small claims treatment for an accounting period.

(2) The small claims amount in relation to each trade of the company for the accounting period is—

(a) if the amount in subsection (3) is lower than the small claims threshold, 75% of the qualifying residual profit of the trade for the accounting period;

(b) in any other case, the amount given by—

where—

SCT is the small claims threshold, and
T is the number of trades of the company.

(3) The amount referred to in subsection (2)(a) is—

where QRP is the aggregate of the amounts of qualifying residual profit of each trade of the company for the accounting period (but see subsection (4)).

(4) Any amount of qualifying residual profit of a trade of the company that is not greater than nil is to be disregarded for the purposes of subsection (3).

(5) If the company has no associated company in the accounting period, the small claims threshold is £1,000,000.

(6) If the company has one or more associated companies in the accounting period, the small claims threshold is—

where N is the number of those associated companies in relation to which an election under section 357A has effect for the accounting period.

(7) For an accounting period of less than 12 months, the small claims threshold is proportionately reduced.

(8) Sections 25 to 30 (definition of “associated companies”) have effect for the purposes of this section.

Marketing assets return figure

357CN Marketing assets return figure

(1) The marketing assets return figure in relation to a trade of a company for an accounting period is—

where—

(2) Where—

(a) AMR is greater than NMR, or

(b) the difference between NMR and AMR is less than 10% of the qualifying residual profit of the trade for the accounting period,

the marketing assets return figure is nil.

357CO Notional marketing royalty

(1) The notional marketing royalty in respect of a trade of a company for an accounting period is the appropriate percentage of the relevant IP income for that accounting period.

In this section “relevant IP income”, in relation to a trade of a company for an accounting period, means so much of the total gross income of the trade for the accounting period as is relevant IP income.

(2) The “appropriate percentage” is the proportion of any relevant IP income for an accounting period which the company would pay another person (“P”) for the right to exploit the relevant marketing assets in that accounting period if the company were not otherwise able to exploit them.

(3) For the purposes of this section a marketing asset is a “relevant marketing asset” in relation to an accounting period if the relevant IP income of the trade of the company for the accounting period includes any income arising from things done by the company that involve the exploitation by the company of that marketing asset.

(4) For the purposes of determining the appropriate percentage under this section, assume that—

(a) the company and P are dealing at arm’s length,

(b) the company, or the company and persons authorised by it, will have the right to exploit the relevant marketing assets to the exclusion of any other person (including P),

(d) the right to exploit the relevant marketing assets is conferred on the relevant day,

(e) the appropriate percentage for the accounting period is determined at the beginning of the accounting period,

(f) the appropriate percentage for the accounting period will apply for each succeeding accounting period for which the company will have the right to exploit the relevant marketing assets, and

(g) no income other than relevant IP income will arise from anything done by the company that involves the exploitation by the company of the relevant marketing assets.

(5) In subsection (4)(d) “the relevant day”, in relation to a relevant marketing asset, means—

(a) the first day of the accounting period, or

(b) if later, the day on which the company first acquired the relevant marketing asset or the right to exploit the asset.

(6) In determining the appropriate percentage, the company must act in accordance with—

(a) Article 9 of the OECD Model Tax Convention, and

(b) the OECD transfer pricing guidelines.

(7) In this section “marketing asset” means any of the following (whether or not capable of being transferred or assigned)—

(a) anything in respect of which proceedings for passing off could be brought, including a registered trade mark (within the meaning of the Trade Marks Act 1994),

(b) anything that corresponds to a marketing asset within paragraph (a) and is recognised under the law of a country or territory outside the United Kingdom,

(c) any signs or indications (so far as not falling within paragraph (a) or (b)) which may serve, in trade, to designate the geographical origin of goods or services, and

(d) any information which relates to customers or potential customers of the company, or any other member of a group of which the company is a member, and is intended to be used for marketing purposes.

357CP Actual marketing royalty

(1) The actual marketing royalty in respect of a trade of a company for an accounting period is X% of the aggregate of any sums which—

(a) were paid by the company for the purposes of acquiring any relevant marketing assets, or the right to exploit any such assets, and

(b) were brought into account as debits in calculating the profits of the trade for the accounting period.

(2) In this section—

“relevant marketing assets” has the same meaning as in section 357CO, and
“X%” is the percentage given by Step 2 in section 357C(1).

Profits arising before grant of right

357CQ Profits arising before grant of right

(1) This section applies where a company—

(a) holds a right mentioned in paragraph (a), (b) or (c) of section 357BB(1) (rights to which this Part applies) or an exclusive licence in respect of such a right, or

(b) would hold such a right or licence but for the fact that the company disposed of any rights in the invention or (as the case may be) the licence before the right was granted.

(2) The company may elect that, for the purposes of determining the relevant IP profits of a trade of the company for the accounting period in which the right is granted, there is to be added the amount determined in accordance with subsection (3) (the “additional amount”).

(3) The additional amount is the difference between—

(a) the aggregate of the relevant IP profits of the trade for each relevant accounting period, and

(b) the aggregate of what the relevant IP profits of the trade for each relevant accounting period would have been if the right had been granted on the relevant day.

(4) For the purposes of determining the additional amount, the amount of any relevant IP profits to which section 357A does not apply by virtue of Chapter 5 (relevant IP losses) is to be disregarded.

(5) In this section “relevant accounting period” means—

(a) the accounting period of the company in which the right is granted, and

(b) any earlier accounting period of the company which meets the conditions in subsection (6).

(6) The conditions mentioned in subsection (5)(b) are—

(a) that it is an accounting period for which an election made by the company under section 357A has effect,

(b) that it is an accounting period for which the company is a qualifying company, and

(7) In this section “the relevant day” is the later of—

(a) the first day of the period of 6 years ending with the day on which the right is granted, or

(b) the day on which—

(i) the application for the grant of the right was filed, or

(ii) in the case of a company that holds an exclusive licence in respect of the right, the licence was granted.

(8) Where the company would be a qualifying company for an accounting period but for the fact that the right had not been granted at any time during that accounting period, the company is to be treated for the purposes of this section as if it were a qualifying company for that accounting period.

(9) Where the company would be a qualifying company for the accounting period in which the right was granted but for the fact that the company disposed of the rights or licence mentioned in subsection (1)(b) before the right was granted, the company is to be treated for the purposes of section 357A as if it were a qualifying company for that accounting period.

CHAPTER 4 Streaming

357D Alternative method of calculating relevant IP profits: “streaming”

(1) A company may elect to apply section 357DA (instead of section 357C) for the purposes of determining the relevant IP profits of any trade of the company for an accounting period.

(2) An election made under subsection (1) is known as a “streaming election”.

(3) A streaming election has effect—

(a) for the accounting period for which it is made, and

(b) for each subsequent accounting period.

This is subject to section 357DB.

(4) If any of the mandatory streaming conditions in section 357DC is met in relation to a trade of a company for an accounting period, the company must apply section 357DA (instead of section 357C) for the purposes of determining the relevant IP profits of the trade for that accounting period.

357DA Relevant IP profits

(1) To determine the relevant IP profits of a trade of a company for an accounting period in accordance with this section—

Step 1

Take any amounts which are brought into account as credits in calculating the profits of the trade for the accounting period, other than any amounts of finance income (see section 357CB), and divide them into two “streams”, amounts of relevant IP income (see sections 357CC and 357CD) and amounts that are not amounts of relevant IP income.

The stream consisting of relevant IP income is “the relevant IP income stream”.

Step 2

Take any amounts which are brought into account as debits in calculating the profits of the trade for the accounting period, other than any amounts referred to in section 357CG(3), and allocate them on a just and reasonable basis between the two streams.

(See also section 357CG(5).)

Step 3

Deduct from the relevant IP income stream the amounts allocated to that stream under Step 2.

Step 4

Deduct from the amount given by Step 3 the routine return figure (see subsection (4)).

The amount given by this step is the “qualifying residual profit”.

If the amount of the qualifying residual profit is not greater than nil, go to Step 7.

Step 5

If the company has elected for small claims treatment, calculate the small claims amount in relation to the trade (see section 357CM).

If the company has not, go to Step 6.

Step 6

Deduct from the qualifying residual profit the marketing assets return figure (see section 357CN and subsection (6)).

Step 7

If the company has made an election under section 357CQ (which provides in certain circumstances for profits arising before the grant of a right to be treated as relevant IP profits), add to the amount given by Step 5 or 6 (or, if the amount of the qualifying residual profit was not greater than nil, Step 4) any amount determined in accordance with subsection (3) of that section.

(2) If the amount given by subsection (1) is greater than nil, that amount is the relevant IP profits of the trade for the accounting period.

(3) If the amount given by subsection (1) is less than nil, that amount is the relevant IP losses of the trade for the accounting period (see Chapter 5).

(4) The routine return figure, in relation to a trade of a company for an accounting period, is 10% of the aggregate of any routine deductions which—

(a) have been made by the company in calculating the profits of the trade for the accounting period, and

(b) have been allocated to the relevant IP income stream under Step 2.

In this subsection “routine deductions” is to be read in accordance with sections 357CJ and 357CK.

(5) Subsections (2) and (3) of section 357CI have effect for the purposes of subsection (4) of this section as they have effect for the purposes of that section.

(6) For the purposes of determining the marketing assets return figure in Step 6, section 357CP (actual marketing royalty) has effect as if the reference to X% of the aggregate of any sums falling within subsection (1) of that section were a reference to the aggregate of any such sums which have been allocated to the relevant IP income stream under Step 2.

357DB Method of allocation

(1) In this section “method of allocation” means the method of allocating, for the purposes of Step 2 in section 357DA(1), the amounts mentioned in that step.

(2) A company that applies section 357DA for the purposes of determining the relevant IP profits of a trade of the company for an accounting period must use the same method of allocation in relation to the trade for that accounting period as it used in the last accounting period of the company for which it applied that section for the purposes of determining the relevant IP profits of the trade.

(3) But subsection (2) does not apply if there is a change of circumstances relating to the trade which makes the use of that method of allocation in relation to the trade for the accounting period inappropriate.

(4) In such a case, the company may—

(a) use a different method of allocation in relation to the trade for the accounting period (and subsection (2) applies accordingly for subsequent accounting periods), or

(b) elect not to apply section 357DA for the purposes of determining the relevant IP profits of the trade for the accounting period.

(5) Subsection (4)(b) does not prevent the company making a fresh streaming election in relation to the trade for any subsequent accounting period.

357DC The mandatory streaming conditions

(1) Mandatory streaming condition A is met in relation to a trade of a company for an accounting period if—

(a) any amount brought into account as a credit in calculating the profits of the trade for the accounting period is not fully recognised as revenue for the accounting period, and

(b) the amount, or the aggregate of any such amounts, is substantial.

(2) An amount is a “substantial” amount for the purposes of this section if it is greater than—

(a) £2,000,000, or

(b) 20% of the total gross income of the trade for the accounting period,

whichever is the lower.

(3) But an amount is not a substantial amount for the purposes of this section if it does not exceed £50,000.

(4) The reference in subsection (1)(a) to an amount brought into account as a credit includes a reference to any amount brought into account by virtue of section 147 of TIOPA 2010 (basic transfer-pricing rule).

(5) Mandatory streaming condition B is met in relation to a trade of a company for an accounting period if the total gross income of the trade for the accounting period includes—

(a) relevant IP income, and

(b) a substantial amount of licensing income that is not relevant IP income.

(6) In subsection (5) “licensing income” means income consisting of any licence fee, royalty or other payment which the company has received under an agreement granting another person any right in respect of any intellectual property held by the company.

“Intellectual property” has the meaning given by section 712(3) of CTA 2009.

(7) Mandatory streaming condition C is met in relation to a trade of a company for an accounting period if the total gross income of the trade for the accounting period includes—

(a) income that is not relevant IP income, and

(b) a substantial amount of relevant Head 2 income.

(8) Income is “relevant Head 2 income” for the purposes of subsection (7) if—

(a) it is relevant IP income received under an agreement falling within subsection (6) of section 357CC, and

(b) every qualifying IP right—

(i) in respect of which a right within paragraph (a) of that subsection is granted by the agreement, or

(ii) which is granted in respect of an invention in respect of which a right within paragraph (b) of that subsection is granted by the agreement,

is a right in respect of which the company holds an exclusive licence.

(9) In a case where—

(a) relevant IP income is received under an agreement falling within section 357CC(6), but

(b) the condition in paragraph (b) of subsection (8) above is not met,

so much of the relevant IP income as on a just and reasonable apportionment is attributable to any qualifying IP right falling within that paragraph is relevant Head 2 income for the purposes of subsection (7).

CHAPTER 5 Relevant IP losses

357E Company with relevant IP losses: set-off amount

Where a company would be entitled to make a deduction under section 357A(2) in calculating the profits of a trade of the company for an accounting period but for the fact that there are relevant IP losses of the trade for the accounting period, there is a “set-off amount” in relation to the trade of the company for the accounting period which is equal to the amount of the relevant IP losses.

357EA Effect of set-off amount on company with more than one trade

(1) This section applies where—

(a) there is a set-off amount in relation to a trade of a company for an accounting period, and

(b) the company carries on any other trade.

(2) The set-off amount is to be reduced (but not to below nil) by any relevant IP profits of that other trade for the accounting period.

(3) Section 357A does not apply in relation to so much of the amount of relevant IP profits of that other trade for the accounting period as is equal to the amount by which the set-off amount is reduced under subsection (2).

357EB Allocation of set-off amount within a group

(1) This section applies where—

(a) there is a set-off amount in relation to a trade of a company for an accounting period,

(b) the company is a member of a group, and

(2) The set-off amount (or so much of it as remains after the operation of section 357EA(2)) is to be reduced (but not to below nil) by any relevant IP profits of a trade of a relevant group member for the relevant accounting period.

(3) For the purposes of this section—

(a) “relevant group member” means another member of the group that has made an election under section 357A and is a qualifying company for the relevant accounting period, and

(b) “relevant accounting period”, in relation to a company, means the accounting period of the company in or at the end of which the accounting period mentioned in subsection (1)(a) ends.

(4) Section 357A does not apply in relation to so much of the amount of relevant IP profits of the trade of the relevant group member for the relevant accounting period as is equal to the amount by which the set-off amount (or so much of it as remains after the operation of section 357EA(2)) is reduced under subsection (2).

(5) Where there is more than one relevant group member, the relevant group members may jointly determine the order in which subsection (2) is to apply to them.

(6) If no determination is made under subsection (5), subsection (2) is to apply first to the trade that has the greatest amount of relevant IP profits of any trade of any of the relevant group members for a relevant accounting period, then to the trade that has the second greatest amount of relevant IP profits of any of those trades for such a period, and so on.

357EC Carry-forward of set-off amount

(1) This section applies where—

(a) there is a set-off amount in relation to a trade of a company for an accounting period, and

(b) the set-off amount has not been reduced to nil by the operation of section 357EA(2) or 357EB(2).

(2) The set-off amount (or so much of it as remains after the operation of section 357EA(2) or 357EB(2)) is to be reduced (but not to below nil) by the amount of any relevant IP profits of the trade of the company for the current accounting period.

The “current accounting period” is the accounting period immediately following the accounting period mentioned in subsection (1)(a).

(3) Section 357A does not apply in relation to so much of the amount of relevant IP profits of the trade of the company for the current accounting period as is equal to the amount by which the set-off amount (or so much of it as remains after the operation of section 357EA(2) or 357EB(2)) is reduced under subsection (2).

(4) If any portion of the set-off amount remains after the operation of subsection (2), that portion (“the remaining portion”) is to be treated as the set-off amount in relation to the trade of the company for the current accounting period (and the provisions of this Chapter apply accordingly).

(5) If there are relevant IP losses of the trade of the company for the current accounting period, the set-off amount in relation to the trade of the company for that accounting period is the aggregate of the remaining portion and an amount equal to the amount of those

relevant IP losses (and the provisions of this Chapter apply accordingly).

357ED Company ceasing to carry on trade, etc

(1) This section applies where—

(a) there is a set-off amount in relation to a trade of a company for an accounting period, and

(b) at any time in the accounting period immediately following that accounting period, the company meets any of the conditions in subsection (2).

(2) The conditions are—

(a) that the company ceases to carry on the trade,

(b) that the company ceases to be within the charge to corporation tax in respect of the trade, or

(3) Sections 357EA to 357EC continue to have effect in relation to the set-off amount subject to the following provisions of this section.

(4) Section 357EB has effect as if—

(a) the reference in subsection (1)(b) to the company being a member of a group were a reference to the company having been a member of the group at the time referred to in subsection (1)(b) of this section,

(b) for subsection (2) there were substituted—

“(2) The set-off amount (or so much of it as remains after the operation of section 357EA(2)) is to become, or be added to, the set-off amount in relation to a trade of a relevant group member for the relevant accounting period.”,

(d) for the words after “determine” in subsection (5) there were substituted “the relevant group member to which subsection (2) is to apply”, and

(e) for subsection (6) there were substituted—

“(6) If no determination is made under subsection (5), subsection (2) is to apply to the trade that has the greatest amount of relevant IP profits of any trade of any of the relevant group members for a relevant accounting period.

(7) If there is no relevant group member with any relevant IP profits of a trade for the relevant accounting period, subsection (2) is to apply to the trade that has the greatest set-off amount in relation to any trade of any of the relevant group members for a relevant accounting period.”

(5) Sections 357EA to 357EC cease to have effect in relation to the set-off amount in relation to the trade of the company for an accounting period if—

(a) the company is not carrying on any other trade in that accounting period, and

(b) in the case of a company that was a member of a group at the time referred to in subsection (1)(b) of this section, none of the members of the group is a relevant group member (within the meaning of section 357EB).

(6) In such a case, the set-off amount (so far as remaining after the operation of those sections) is to be reduced to nil.

357EE Transfer of a trade between group members

(1) This section applies where—

(a) there is a set-off amount in relation to a trade of a company for an accounting period,

(b) the company is a member of a group,

(d) another company (“the transferee”) that is a member of the group begins to carry on that trade.

(2) For the purposes of this Chapter an amount equal to the set-off amount is to become, or be added to, the set-off amount in relation to the trade of the transferee for the accounting period in which the transferee begins to carry on the trade.

357EF Payments between group members in consequence of section 357EB

(1) This section applies if—

(a) there is a set-off amount in relation to a trade of a company for an accounting period,

(b) subsection (2) of section 357EB has effect in relation to a relevant group member for the relevant accounting period (within the meaning of that section),

(c) the company and the relevant group member have an agreement between them in relation to the relevant IP losses of the company, and

(d) as a result of the agreement the company makes a payment to the relevant group member that does not exceed the reduction in the relevant IP profits of the relevant group member arising under section 357EB(4).

(2) The payment—

(a) is not to be taken into account in determining the profits or losses of either company for corporation tax purposes, and

(b) is not for any purposes of the Corporation Tax Acts to be regarded as a distribution.

(3) In a case where section 357ED applies (company ceasing to carry on trade, etc), the reference in subsection (1)(d) to the reduction in the relevant IP profits of the relevant group member is to be read as a reference to the amount that becomes, or is added to, the set-off amount in relation to a trade of the relevant group member for the relevant accounting period under section 357EB(2).

CHAPTER 6 Anti-avoidance

Licences conferring exclusive rights

357F Licences conferring exclusive rights

A licence that confers any right in respect of a qualifying IP right to the exclusion of all other persons is not to be regarded as an exclusive licence if the main purpose, or one of the main purposes, of conferring the right is to secure that the licence is an exclusive licence for the purposes of this Part.

Incorporation of qualifying items

357FA Incorporation of qualifying items

(1) Income arising from the sale of any item that incorporates a qualifying item is not relevant IP income if the main purpose, or one of the main purposes, of incorporating the qualifying item is to secure that income arising from any such sale is relevant IP income.

(2) “Qualifying item” has the same meaning as in section 357CC(2).

Tax advantage schemes

357FB Tax advantage schemes

(1) This section applies where—

(a) a company is entitled to make a deduction under section 357A(2) in calculating the profits of a trade of the company for an accounting period,

(b) the company is or has at any time been a party to a scheme, and

(c) the main purpose, or one of the main purposes, of the company or, where the company is a member of a group, any member of the group in being a party to the scheme is (or was) to obtain the chance of securing a relevant tax advantage.

(2) There is a “relevant tax advantage” for the purposes of this section if—

(a) (apart from this section) there would be an increase in the amount of any deduction made under section 357A(2) in calculating the profits of a trade of the company or (as the case may be) any other member of the group for any accounting period, and

(b) the increase would arise from—

(i) the avoidance of the operation of any provision of this Part,

(ii) artificially inflating the amount of relevant IP income brought into account in calculating those profits (see subsection (3)), or

(iii) a mismatch between relevant IP income and expenditure (see subsection (4)).

(3) The reference in subsection (2)(b) to artificially inflating the amount of relevant IP income brought into account in calculating the profits mentioned in subsection (2)(a) is a reference to doing any of the following—

(a) bringing into account in calculating those profits an amount of relevant IP income that wholly or substantially corresponds to an increase in the amounts brought into account as debits in calculating those profits;

(b) bringing into account in calculating those profits an additional amount of relevant IP income that wholly or substantially corresponds to a decrease in the amount of income that is not relevant IP income which is brought into account in calculating those profits.

(4) For the purposes of this section there is a mismatch between relevant IP income and expenditure if—

(a) any relevant IP income brought into account in calculating the profits mentioned in subsection (2)(a) is attributable to any qualifying IP right or an exclusive licence in respect of any such right, and

(b) any expenditure incurred in relation to that right is brought into account in calculating the profits of a trade of the company or (as the case may be) any other member of the group for an accounting period for which an election under section 357A did not have effect.

(5) The amount of the deduction which may be made by the company for the accounting period mentioned in subsection (1)(a) is the amount that would secure that no relevant tax advantage arises (and may be nil).

(6) In this section “scheme” includes any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions.

CHAPTER 7 Supplementary

Elections under section 357A

357G Making of election under section 357A

(1) An election made by a company under section 357A is made by giving notice to an officer of Revenue and Customs.

(2) The notice must specify the first accounting period of the company for which the election is to have effect.

(3) The notice must be given on or before the last day on which an amendment of the company’s tax return for that accounting period could be made under paragraph 15 of Schedule 18 to FA 1998.

(4) The election has effect in relation to each trade carried on by the company.

(5) Subject to section 357GA, the election has effect for the accounting period specified in the notice and all subsequent accounting periods of the company.

357GA Revocation of election made under section 357A

(1) A company may revoke an election made by it under section 357A by giving notice to an officer of Revenue and Customs.

(2) The notice must specify the first accounting period of the company for which the revocation is to have effect.

(3) The notice must be given on or before the last day on which an amendment of the company’s tax return for that accounting period could be made under paragraph 15 of Schedule 18 to FA 1998.

(4) The revocation has effect in relation to the accounting period specified in the notice and all subsequent accounting periods of the company.

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