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Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

158

 

(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—

0.75 × QRP

5

   

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

10

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—

15

   

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.

20

(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

25

for an accounting period is—

NMR − AMR

   

where—

NMR is the notional marketing royalty in respect of the trade

for the accounting period (see section 357CO), and

AMR is the actual marketing royalty in respect of the trade for

30

the accounting period (see section 357CP).

(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

35

period,

   

the marketing assets return figure is nil.

 
 

Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

159

 

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

5

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

10

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

15

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—

20

(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),

(c)   

the company will have the same rights in relation to the

25

relevant marketing assets as it actually has,

(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,

30

(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

35

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

40

(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

45

(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)—

 
 

Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

160

 

(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

5

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

10

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

15

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

20

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).

25

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

30

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

35

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—

40

(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.

45

 
 

Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

161

 

(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

5

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

10

the company under section 357A has effect,

(b)   

that it is an accounting period for which the company is a

qualifying company, and

(c)   

that it ends on or after the relevant day.

(7)   

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

15

(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

20

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

25

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

30

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”

35

(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”.

40

(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.

 
 

Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

162

 

(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.

5

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

10

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.

15

   

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

20

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

25

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”.

30

   

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).

35

   

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

40

   

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

45

accordance with subsection (3) of that section.

 
 

Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

163

 

(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).

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

10

(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

15

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

20

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

25

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

30

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

35

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

40

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

45

streaming election in relation to the trade for any subsequent

accounting period.

 
 

 
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Revised 9 May 2012