Finance (No. 2) Bill (HC Bill 155)

Finance (No. 2) BillPage 90

(6) The amendments made by this section have effect for the purposes of
determining whether any expenditure—

(a) incurred by a company on or after 16 March 2016 on the acquisition of
an asset, or

(b) 5treated under section 332CA of CTA 2010 as so incurred,

is relievable expenditure for the purposes of section 332C of CTA 2010.

56 Investment allowance: power to expand meaning of “relevant income”

(1) Section 332F of CTA 2010 (activation of investment allowance) is amended as
follows.

(2) 10In subsection (2)(b) before “the company’s relevant income” insert “the total
amount of”.

(3) For subsection (3) substitute—

(3) For the purposes of this Chapter, income is relevant income of a
company from a qualifying oil field for an accounting period if it is—

(a) 15production income of the company from any oil extraction
activities carried on in that oil field that is taken into account in
calculating the company’s adjusted ring fence profits for the
accounting period, or

(b) income that—

(i) 20is income of such description (whether or not relating to
the oil field) as may be prescribed by the Treasury by
regulations, and

(ii) is taken into account as mentioned in paragraph (a).

(4) The Treasury may by regulations make such amendments of this
25Chapter as the Treasury consider appropriate in consequence of, or in
connection with, any provision contained in regulations under
subsection (3)(b).

(5) Regulations under subsection (3)(b) or (4) may provide for any of the
provisions of the regulations to have effect in relation to accounting
30periods ending before (or current when) the regulations are made.

(6) But subsection (5) does not apply to—

(a) any provision of amending or revoking regulations under
subsection (3)(b) which has the effect that income of any
description is to cease to be treated as relevant income of a
35company from a qualifying oil field for an accounting period, or

(b) provision made under subsection (4) in consequence of or in
connection with provision within paragraph (a).

(7) Regulations under this section may make transitional provision or
savings.

(8) 40Regulations under this section may not be made unless a draft of the
instrument containing them has been laid before, and approved by a
resolution of, the House of Commons.”

57 Onshore allowance: disqualifying conditions

(1) CTA 2010 is amended as follows.

Finance (No. 2) BillPage 91

(2) In section 356C after subsection (4) insert—

(4A) Subsections (1) to (4) are subject to section 356CAA (which prevents
expenditure on the acquisition of an asset from being relievable in
certain circumstances).”

(3) 5After section 356CA insert—

356CAA Expenditure on acquisition of asset: further disqualifying
conditions

(1) Capital expenditure incurred by a company (“the acquiring company“)
on the acquisition of an asset (“the acquisition concerned”) is not
10relievable capital expenditure for the purposes of section 356C if
subsection (2), (3) or (8) applies to the asset.

(2) This subsection applies to the asset if capital expenditure incurred
before the acquisition concerned, by the acquiring company or another
company, in acquiring, bringing into existence or enhancing the value
15of the asset was relievable under section 356C.

(3) This subsection applies to the asset if—

(a) the asset—

(i) is the whole or part of the equity in a qualifying site, or

(ii) is acquired in connection with a transfer to the acquiring
20company of the whole or part of the equity in a
qualifying site,

(b) capital expenditure was incurred before the acquisition
concerned, by the acquiring company or another company, in
acquiring, bringing into existence or enhancing the value of the
25asset, and

(c) any of that expenditure—

(i)(i) related to the qualifying site, and

(ii) would have been relievable under section 356C if this
Chapter had been fully in force and had applied to
30expenditure incurred at that time.

(4)
For the purposes of subsection (3)(a)(ii) it does not matter whether the
asset is acquired at the time of the transfer.

(5) In subsection (3)(c) “this Chapter” means the provisions of this Chapter
as those provisions have effect at the time when the capital expenditure
35mentioned in subsection (1) is incurred.

(6) The reference in subsection (3)(c)(i) to the qualifying site includes an
area that, although not a qualifying site when the expenditure
mentioned in subsection (3)(b) was incurred, subsequently became the
qualifying site.

(7) 40Where expenditure mentioned in subsection (3)(b) related to an area
which subsequently became the qualifying site, the following sub-
paragraph is to be treated as substituted for subsection (3)(c)(ii)—

(“ii) would have been relievable under section 356C if the
area in question had been a qualifying site when the
45expenditure was incurred, or if the area in question had
been such a site at that time and this Chapter had been

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fully in force and had applied to expenditure incurred at
that time.”

(8) This subsection applies to the asset if—

(a) capital expenditure mentioned in subsection (1) would, in the
5absence of this section, be relievable under section 356C by
reason of an election under section 356CB (treatment of
expenditure not related to an established site), and

(b) capital expenditure which was incurred before the acquisition
concerned, by the acquiring company or another company, in
10acquiring, bringing into existence or enhancing the value of the
asset, either—

(i) has become relievable under section 356C by reason of
an election under section 356CB, or

(ii) would be so relievable if such an election were made in
15respect of that expenditure.

(9) In determining for the purposes of subsection (8)(b) whether particular
expenditure was incurred “before” the acquisition concerned—

(a) paragraph (b) of section 356CB(6) is to be ignored, and

(b) accordingly, that expenditure is to be taken (for the purposes of
20determining whether it was incurred before the acquistion
concerned) to have been incurred when it was actually
incurred.

(10) For the purposes of subsection (8)(b)(ii) it does not matter if an election
is not in fact capable of being made.”

(4) 25The amendments made by this section have effect for the purposes of
determining whether any expenditure—

(a) incurred by a company on or after 16 March 2016 on the acquisition of
an asset, or

(b) treated by reason of an election under section 356CB as so incurred,

30is relievable expenditure for the purposes of section 356C of CTA 2010.

58 Cluster area allowance: disqualifying conditions

(1) Section 356JFA of CTA 2010 (expenditure on acquisition of asset: disqualifying
conditions) is amended as follows.

(2) In subsection (2) after “acquiring,” insert “leasing,”.

(3) 35In subsection (3)(b) after “acquiring,” insert “leasing,”.

(4) After subsection (4) insert—

(5) In this section any reference to expenditure which was incurred by a
company in “leasing” an asset is to expenditure incurred by the
company under an agreement under which the asset was leased to the
40company.”

(5) The amendments made by this section have effect for the purposes of
determining whether any expenditure incurred by a company on or after 16
March 2016 on the acquisition of an asset is relievable expenditure for the
purposes of section 356JF of CTA 2010.

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59 Cluster area allowance: power to expand meaning of “relevant income”

(1) Section 356JH of CTA 2010 (activation of cluster area allowance) is amended as
follows.

(2) In subsection (2)(b) before “the company’s relevant income” insert “the total
5amount of”.

(3) For subsection (3) substitute—

(3) For the purposes of this Chapter, income is relevant income of a
company from a cluster area for an accounting period if it is—

(a) production income of the company from any oil extraction
10activities carried on in that area that is taken into account in
calculating the company’s adjusted ring fence profits for the
accounting period, or

(b) income that—

(i) is income of such description (whether or not relating to
15the cluster area) as may be prescribed by the Treasury by
regulations, and

(ii) is taken into account as mentioned in paragraph (a).

(4) The Treasury may by regulations make such amendments of this
Chapter as the Treasury consider appropriate in consequence of, or in
20connection with, any provision contained in regulations under
subsection (3)(b).

(5) Regulations under subsection (3)(b) or (4) may provide for any of the
provisions of the regulations to have effect in relation to accounting
periods ending before (or current when) the regulations are made.

(6) 25But subsection (5) does not apply to—

(a) any provision of amending or revoking regulations under
subsection (3)(b) which has the effect that income of any
description is to cease to be treated as relevant income of a
company from a cluster area for an accounting period, or

(b) 30provision made under subsection (4) in consequence of or in
connection with provision within paragraph (a).

(7) Regulations under this section may make transitional provision or
savings.

(8) Regulations under this section may not be made unless a draft of the
35instrument containing them has been laid before, and approved by a
resolution of, the House of Commons.”

Exploitation of patents etc

60 Profits from the exploitation of patents etc

(1) Part 8A of CTA 2010 (profits arising from the exploitation of patents etc) is
40amended as follows.

(2) In section 357A (election for special treatment of profits from patents etc)—

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(a) for subsections (6) and (7) substitute—

(6) Chapter 2A makes provision for determining the relevant IP
profits or relevant IP losses of a trade of a company for an
accounting period in a case where—

(a) 5the accounting period begins on or after 1 July 2021, or

(b) the company is a new entrant (see subsection (11)).

(7) Chapters 2B, 3 and 4 make provision for determining the
relevant IP profits or relevant IP losses of a trade of a company
for an accounting period in various cases where—

(a) 10the accounting period begins before 1 July 2021, and

(b) the company is not a new entrant.”, and

(b) after subsection (10) insert—

(11) A company is a “new entrant” for the purposes of this Part if the
first accounting period for which the company’s election (or
15most recent election) under subsection (1) has effect begins on
or after 1 July 2016.”

(3) After section 357BE insert—

“CHAPTER 2A Relevant IP profits: cases mentioned in section 357A(6)
Steps for calculating relevant IP profits of a trade
357BF 20 Relevant IP profits

(1) This section applies for the purposes of determining the relevant IP
profits of a trade of a company for an accounting period in a case
where—

(a) the accounting period begins on or after 1 July 2021, or

(b) 25the company is a new entrant (see section 357A(11)).

(2) To determine the relevant IP profits—

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
30any amounts of finance income (see section 357BG), and divide them
into two “streams”, amounts of relevant IP income (see sections 357BH
to 357BHC) and amounts that are not amounts of relevant IP income.

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

35Step 2

Divide the relevant IP income stream into “relevant IP income sub-
streams” so that each sub-stream is either—

  • a sub-stream consisting of income properly attributable to a
    particular qualifying IP right (an “individual IP right sub-
    40stream”), or

  • a sub-stream consisting of income properly attributable to a
    particular kind of multi-IP item (a “product sub-stream”).

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See subsections (5) and (6) for the meaning of “multi-IP item” and
further provision in connection with product sub-streams.

Step 3

Take any amounts which are brought into account as debits in
5calculating the profits of the trade for the accounting period, other than
any excluded debits (see section 357BI), and allocate them on a just and
reasonable basis between the standard income stream and each of the
relevant IP income sub-streams.

Step 4

10Deduct from each relevant IP income sub-stream—

  • the amounts allocated to the sub-stream at Step 3, and

  • the routine return figure for the sub-stream (see section 357BJ).

Step 5

If the company has made an election under section 357BK for small
15claims treatment, deduct from each relevant IP income sub-stream
which is greater than nil following Step 4 the small claims figure for the
sub-stream (see section 357BKA).

Step 6

If the company has not made an election under section 357BK for small
20claims treatment, deduct from each relevant IP income sub-stream
which is greater than nil following Step 4 the marketing assets return
figure for the sub-stream (see section 357BL).

Step 7

Multiply the amount of each relevant IP income sub-stream (following
25the deductions required at Steps 4 to 6) by the R&D fraction for the sub-
stream (see section 357BM).

Step 8

Add together the amounts of the relevant IP income sub-streams
(following Step 7).

30Step 9

If the company has made an election under section 357BN (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 8 any amount determined in accordance with subsection (3) of that
35section.

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

(4) If the amount given by subsection (2) is less than nil, that amount is the
relevant IP losses of the trade for the accounting period (see Chapter 5).

(5) 40For the purposes of this section—

(a) “multi-IP item” means an item which incorporates two or more
different items in respect of which different qualifying IP rights
held by the company have been granted;

(b) two or more multi-IP items may be treated as being of a
45particular kind if they are substantially the same as each other,
having regard to the items incorporated in them and the
purposes for which they are intended to be used.

(6) Income which is properly attributable to a multi-IP item may be
allocated at Step 2 of subsection (2) to a product sub-stream only if—

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(a) it would not be reasonably practicable to apportion the income
between individual IP right sub-streams, or

(b) it would be reasonably practicable to do that but doing so
would result in it not being reasonably practicable to apply any
5of the remaining steps in subsection (2).

Finance income
357BG Finance income

(1) For the purposes of this Part “finance income”, in relation to a trade of
a company, means—

(a) 10any credits which are treated as receipts of the trade by virtue
of—

(i) section 297 of CTA 2009 (credits in respect of loan
relationships), or

(ii) section 573 of CTA 2009 (credits in respect of derivative
15contracts),

(b) any amount which in accordance with generally accepted
accounting practice falls to be recognised as arising from a
financial asset, and

(c) any return, in relation to an amount, which—

(i) 20is produced for the company by an arrangement to
which it is a party, and

(ii) is economically equivalent to interest.

(2) In subsection (1)—

  • “economically equivalent to interest” is to be construed in
    25accordance with section 486B(2) and (3) of CTA 2009, and

  • “financial asset” means a financial asset as defined for the
    purposes of generally accepted accounting practice.

(3) For the purposes of subsection (1)(c), the amount of a return is the
amount which by virtue of the return would, in calculating the
30company’s chargeable profits, be treated under section 486B of CTA
2009 (disguised interest to be regarded as profit from loan relationship)
as profit arising to the company from a loan relationship.

But, in calculating that profit for the purposes of this subsection,
sections 486B(7) and 486C to 486E of that Act are to be ignored.

35Relevant IP income
357BH Relevant IP income

(1) For the purposes of this Part “relevant IP income” means income falling
within any of the Heads set out in—

(a) subsection (2) (sales income),

(b) 40subsection (6) (licence fees),

(c) subsection (7) (proceeds of sale etc),

(d) subsection (8) (damages for infringement), and

(e) subsection (9) (other compensation).

This is subject to section 357BHB (excluded income).

(2)

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Head 1 is income arising from the sale by the company of any of the
following items—

(a) items in respect of which a qualifying IP right held by the
company has been granted (“qualifying items”);

(b) 5items incorporating one or more qualifying items;

(c) items that are wholly or mainly designed to be incorporated
into items within paragraph (a) or (b).

(3) For the purposes of this Part an item and its packaging are not to be
treated as a single item, unless the packaging performs a function that
10is essential for the use of the item for the purposes for which it is
intended to be used.

(4) In subsection (3) “packaging”, in relation to an item, means any form of
container or other packaging used for the containment, protection,
handling, delivery or presentation of the item, including by way of
15attaching the item to, or winding the item round, some other article.

(5) In a case where a qualifying item and an item that is designed to
incorporate that item (“the parent item”) are sold together as, or as part
of, a single unit for a single price, the reference in subsection (2)(b) to an
item incorporating a qualifying item includes a reference to the parent
20item.

(6) Head 2 is income consisting of any licence fee or royalty which the
company receives under an agreement granting another person any of
the following rights only—

(a) a right in respect of any qualifying IP right held by the
25company,

(b) any other right in respect of a qualifying item or process, and

(c) in the case of an agreement granting any right within paragraph
(a) or (b), a right granted for the same purposes as those for
which that right was granted.

30In this subsection “qualifying process” means a process in respect of
which a qualifying IP right held by the company has been granted.

(7) Head 3 is any income arising from the sale or other disposal of a
qualifying IP right or an exclusive licence in respect of such a right.

(8) Head 4 is any amount received by the company in respect of an
35infringement, or alleged infringement, of a qualifying IP right held by
the company at the time of the infringement or alleged infringement.

(9) Head 5 is any amount of damages, proceeds of insurance or other
compensation, other than an amount in respect of an infringement or
alleged infringement of a qualifying IP right, which is received by the
40company in respect of an event and—

(a) is paid in respect of any items that fell within subsection (2) at
the time of that event, or

(b) represents a loss of income which would, if received by the
company at the time of that event, have been relevant IP
45income.

(10) But income is not relevant IP income by virtue of subsection (8) or (9)
unless the event in respect of which the income is received, or any part
of that event, occurred at a time when—

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(a) the company was a qualifying company, and

(b) an election under section 357A had effect in relation to it.

(11) In a case where the whole of that event does not occur at such a time,
subsection (8) or (9) (as the case may be) applies only to so much of the
5amount received by the company in respect of the event as on a just and
reasonable apportionment is properly attributable to such a time.

(12) Any reference in this section to a qualifying IP right held by the
company includes a reference to a qualifying IP right in respect of
which the company holds an exclusive licence.

357BHA 10 Notional royalty

(1) This section applies where—

(a) a company holds a qualifying IP right or an exclusive licence in
respect of a qualifying IP right,

(b) the qualifying IP right falls within paragraph (a), (b) or (c) of
15section 357BB(1), and

(c) the income of a trade of the company for an accounting period
includes income (“IP-derived income”) which—

(i) arises from things done by the company that involve the
exploitation by the company of the qualifying IP right,
20and

(ii) is not relevant IP income or excluded income.

(2) The company may elect that the appropriate percentage of the IP-
derived income is to be treated for the purposes of this Part as if it were
relevant IP income.

(3) 25The “appropriate percentage” is the proportion of the IP-derived
income which the company would pay another person (“P”) for the
right to exploit the qualifying IP right in the accounting period
concerned if the company were not otherwise able to exploit it.

(4) For the purposes of determining the appropriate percentage under this
30section, 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 qualifying IP right to the exclusion
of any other person (including P),

(c) 35the company will have the same rights in relation to the
qualifying IP right as it actually has,

(d) the right to exploit the qualifying IP right is conferred on the
relevant day,

(e) the appropriate percentage is determined at the beginning of
40the accounting period concerned,

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

(g) no income other than IP-derived income will arise from
45anything done by the company that involves the exploitation by
the company of the qualifying IP right.

(5) In subsection (4)(d) “the relevant day” means—

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

(b) if later, the day on which the company first began to hold the
qualifying IP right or licence.

(6) In determining the appropriate percentage, the company must act in
5accordance with—

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

(b) the OECD transfer pricing guidelines.

(7) In this section “excluded income” means any income falling within
either of the Heads in section 357BHB.

357BHB 10 Excluded income

(1) For the purposes of this Part income falling within either of the Heads
set out in the following subsections is not relevant IP income—

(a) subsection (2) (ring fence income),

(b) subsection (3) (income attributable to non-exclusive licences).

(2) 15Head 1 is income arising from oil extraction activities or oil rights.

In this subsection “oil extraction activities” and “oil rights” have the
same meaning as in Part 8 (see sections 272 and 273).

(3) Head 2 is income which on a just and reasonable apportionment is
properly attributable to a licence (a “non-exclusive licence”) held by the
20company which—

(a) is a licence in respect of an item or process, but

(b) is not an exclusive licence in respect of a qualifying IP right.

(4) In a case where—

(a) a company holds an exclusive licence in respect of a qualifying
25IP right, and

(b) the licence also confers on the company (or on the company and
persons authorised by it) any right in respect of the invention
otherwise than to the exclusion of all other persons,

the licence is to be treated for the purposes of this Part as if it were two
30separate licences, one an exclusive licence that does not confer any such
rights, and the other a non-exclusive licence conferring those rights.

357BHC Mixed sources of income

(1) This section applies to any income that—

(a) is mixed income, or

(b) 35is paid under a mixed agreement.

(2) “Mixed income” means the proceeds of sale where an item falling
within subsection (2) of section 357BH and an item not falling within
that subsection are sold together as, or as part of, a single unit for a
single price.

(3) 40A “mixed agreement” is an agreement providing for—

(a) one or more of the matters in paragraphs (a) to (c) of subsection
(4), and

(b) one or more of the matters in paragraphs (d) to (g) of that
subsection.

(4) 45The matters are—