Session 2012 - 13
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Finance Bill
Schedule 2 — Profits arising from the exploitation of patents etc
Part 1 — Amendments of CTA 2010

164

 

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

5

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—

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(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

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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

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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.

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(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

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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

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(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

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(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

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subsection is granted by the agreement,

 
 

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

165

 

   

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

5

(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

10

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

15

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.

20

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.

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(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

30

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,

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(b)   

the company is a member of a group, and

(c)   

the set-off amount has not been reduced to nil by the

operation of section 357EA(2).

(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

40

relevant IP profits of a trade of a relevant group member for the

relevant accounting period.

(3)   

For the purposes of this section—

 
 

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

166

 

(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

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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

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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.

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(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

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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

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(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

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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

35

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

40

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

45

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

 
 

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

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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

5

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—

10

(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

(c)   

that any election made by the company under section 357A

ceases to have effect.

15

(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

20

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

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added to, the set-off amount in relation to a trade of a

relevant group member for the relevant accounting

period.”,

(c)   

subsection (4) were omitted,

(d)   

for the words after “determine” in subsection (5) there were

30

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

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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

40

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

45

amount in relation to the trade of the company for an accounting

period if—

 
 

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

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(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

5

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—

10

(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,

(c)   

the company ceases to carry on the trade, and

(d)   

another company (“the transferee”) that is a member of the

15

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.

20

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

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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

30

(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—

35

(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

40

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).

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

169

 

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

5

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

10

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.

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(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

20

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

25

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

30

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

35

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

40

brought into account in calculating those profits (see

subsection (3)), or

 
 

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

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(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

5

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;

10

(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.

15

(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

20

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

25

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).

30

(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

35

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.

40

(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.

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Revised 9 May 2012