Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 7 — Deduction from other payments connected with intellectual property
419

(a)
Chapter 8 which makes special provision in relation to royalties
(double taxation arrangements: deduction at treaty rate and EU
companies: discretion to pay gross), and
(b)
Chapter 11 (payments between companies etc) for an exception from
the duty to deduct sums representing income tax under this section.
5
(7)
For provision about the collection of income tax in respect of a payment from
which a sum must be deducted under this section—
(a)
see Chapter 15 if the person making the payment is a UK resident
company, and
(b)
otherwise see Chapter 16.
10
(8)
If a payment to which this section applies is also one to which a provision of
Chapter 6 applies, it is treated as not being a payment to which a provision of
Chapter 6 applies.
840
Meaning of “relevant intellectual property right”
(1)
In section 839 “a relevant intellectual property right” means—
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(a)
a copyright,
(b)
a right in a design, or
(c)
the public lending right in respect of a book.
(2)
In this section—
“copyright” does not include copyright in—
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(a)
a cinematographic film or video recording, or
(b)
the sound-track of a cinematographic film or video recording,
except so far as it is separately exploited,
“a right in a design” means the design right in a design, or the right in a
registered design.
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841
Royalty payments etc made through UK resident agents
(1)
If—
(a)
a payment to which section 839 applies is made through an agent who
is UK resident, and
(b)
the agent is entitled as against the owner of the right to deduct a sum as
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commission for services provided,

section 839(5) and Chapters 8 (deduction at special rates), 15 and 16 (collection)
apply as if the amount of the payment were the amount net of the sum
deductible as commission.
(2)
But if the person by or through whom the payment is made does not know the
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commission is payable, or does not know its amount—
(a)
the sum representing income tax required to be deducted under section
839 must be calculated in the first instance on the total amount of the
payment, and
(b)
the return to be made under Chapter 15 or the account of the payment
40
under Chapter 16, must be based on that total amount.

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 7 — Deduction from other payments connected with intellectual property
420

842
Royalty payments: further provision
(1)
A payment to which section 839 applies is treated for all income and
corporation tax purposes as made when it is made by the first person who
makes it, not when it is made by or through any other person.
(2)
If, under section 839, a sum representing income tax must be deducted from a
5
payment, any agreement to make the payment without deduction of that sum
is void.
(3)
Section 839—
(a)
applies to payments on account of royalties as it applies to payments of
royalties, and
10
(b)
applies to payments on account of sums payable periodically as it
applies to payments of sums payable periodically.
Proceeds of a sale of patent rights
843
Proceeds of a sale of patent rights: payments to non-UK residents
(1)
This section applies if a non-UK resident sells the whole or part of any patent
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rights and is chargeable in respect of the sale—
(a)
to income tax under section 587 of ITTOIA 2005, or
(b)
to corporation tax under section 524(3) of ICTA.
(2)
The person by or through whom the proceeds of the sale are paid must, on
making any payment of—
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(a)
the proceeds, or
(b)
an instalment of the proceeds,

deduct from it a sum representing income tax on the chargeable amount at the
basic rate in force for the tax year in which the payment is made.
(3)
In subsection (2) “the chargeable amount” means—
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(a)
so much of the proceeds or instalment as consists of a capital sum, less
(b)
any incidental expenses of the sale which are deducted before payment.
(4)
Sections 597 to 599 of ITTOIA 2005 (licences connected with patents etc) apply
for the purposes of this section as they apply for the purposes of sections 587
to 596 of that Act.
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(5)
Section 4 of CAA 2001 (meaning of “capital sums” etc) applies in relation to this
section as it applies in relation to that Act.
(6)
For further provision about the sum required to be deducted, see—
(a)
section 595 of ITTOIA 2005 (certain rules affecting the seller’s income
tax position do not affect the amount to be deducted), and
35
(b)
section 524(9) of ICTA (certain rules affecting the seller’s corporation
tax position do not affect the amount to be deducted).
(7)
See Chapter 11 (payments between companies etc) for an exception from the
duty to deduct sums representing income tax under this section.
(8)
For provision about the collection of income tax in respect of a payment from
40
which a sum must be deducted under this section—
(a)
see Chapter 15 if the person making the payment is a UK resident
company, and

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 8 — Chapters 6 and 7: special provision in relation to royalties
421

(b)
otherwise see Chapter 16.
Chapter 8
Chapters 6 and 7: special provision in relation to royalties
Deduction at special rates
844
Double taxation arrangements: deduction at treaty rate
5
(1)
This section applies if—
(a)
a company pays a royalty from which it is required to deduct a sum
representing income tax under Chapter 6 or 7,
(b)
the income tax in respect of the payment is collectible under Chapter 15
or 16, and
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(c)
the company reasonably believes that, at the time the payment is made,
the payee is entitled to relief in respect of the payment under double
taxation arrangements.
(2)
The company may calculate the sum to be deducted from the payment under
Chapter 6 or 7 by reference to the treaty rate.
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(3)
But, if the payee is not at the time entitled to such relief, this Part has effect as
if subsection (2) had never applied in relation to the payment.
(4)
In this section “the treaty rate” means the rate of income tax appropriate to the
payee under the arrangements.
845
Power to make directions disapplying section 844
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(1)
This section applies if an officer of Revenue and Customs is not satisfied that
the payee will be entitled to relief under double taxation arrangements in
respect of one or more payments of royalties that a company is to make.
(2)
The officer may direct the company that section 844 is not to apply to the
payment or payments.
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(3)
A direction under subsection (2) may be varied or revoked by a later direction.
846
Interpretation of sections 844 and 845
(1)
In sections 844 and 845 “royalty” includes—
(a)
a payment received as consideration for the use of, or the right to use,
a copyright, patent, trade mark, design, process or information, and
30
(b)
the proceeds of the sale of the whole or part of any patent rights.
(2)
In sections 844 and 845 “payee” means the person beneficially entitled to the
income in respect of which the payment is made.
Discretion to make payments gross
847
EU companies: discretion to make payment gross
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(1)
This section applies if—

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 8 — Chapters 6 and 7: special provision in relation to royalties
422

(a)
a company makes a royalty payment and, at the time the payment is
made, the company reasonably believes that the payment is exempt
from income tax as a result of section 758 of ITTOIA 2005 (exemption
for certain interest and royalty payments), but
(b)
there is a duty to deduct a sum representing income tax from the
5
payment under section 836(7) or 839 if the payment is not in fact
exempt.
(2)
The company may make the payment without deducting a sum representing
income tax under section 836(7) or 839 (as the case may be).
(3)
But if the payment is not in fact exempt from income tax as a result of section
10
758 of ITTOIA 2005, this Part has effect as if subsection (2) had never applied
in relation to the payment.
848
Power to make directions disapplying section 847
(1)
This section applies if an officer of Revenue and Customs is not satisfied that
one or more payments to be made by a company will be exempt from income
15
tax as a result of section 758 of ITTOIA 2005 (exemption for certain interest and
royalty payments).
(2)
The officer may direct the company that section 847 is not to apply to the
payment or payments.
(3)
A direction under subsection (2) may be varied or revoked by a later direction.
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849
Duty of payee to notify if payment not exempt
(1)
This section applies if before a payment of a royalty is made, the company
beneficially entitled to the income in respect of which the payment is to be
made—
(a)
believed that the payment was exempt from income tax as a result of
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section 758 of ITTOIA 2005 (exemption for certain interest and royalty
payments), but
(b)
has subsequently become aware that any of conditions A to C in that
section have ceased to be met.
(2)
The company must without delay notify—
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(a)
an officer of Revenue and Customs, and
(b)
the company which is to make the payment.
850
Supplementary
(1)
If section 763 of ITTOIA 2005 (special relationships) applies, sections 847 to 849
have effect in relation to only so much of the payment as does not exceed the
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arm’s length amount (within the meaning of that section).
(2)
Expressions used in sections 847 to 849 and in sections 757 to 767 of ITTOIA
2005 have the same meaning in sections 847 to 849 as in those sections.

Income Tax Bill
Part 14 — Deduction of income tax at source
Chapter 9 — Manufactured payments
423

Chapter 9
Manufactured payments
Manufactured dividends
851
Manufactured dividends on UK shares: Real Estate Investment Trusts
(1)
This section applies if—
5
(a)
a person pays a manufactured dividend as mentioned in section 573(1),
and
(b)
the manufactured dividend is representative of a dividend which is—
(i)
paid by a company to which Part 4 of FA 2006 applies (Real
Estate Investment Trusts) in respect of profits of C (tax-exempt),
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or
(ii)
paid by the principal company of a group to which that Part
applies in respect of profits of G (property rental business).
(2)
This section applies only so far as the manufactured dividend is representative
of such a dividend.
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(3)
If the payer—
(a)
is UK resident, or
(b)
pays the manufactured dividend in the course of a trade carried on
through a branch or agency in the United Kingdom,

regulations under section 906 apply to the payer as they apply to a company to
20
which Part 4 of FA 2006 applies, with any necessary modifications.
(4)
The Treasury may by regulations provide, in a case where the payer—
(a)
is non-UK resident, and
(b)
pays the manufactured dividend otherwise than in the course of a trade
carried on through a branch or agency in the United Kingdom,
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for a United Kingdom recipient of the manufactured dividend to be liable to
account for and pay income tax in respect of it.
(5)
A United Kingdom recipient is a recipient who—
(a)
is UK resident, or
(b)
is non-UK resident but receives the manufactured dividend for the
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purposes of a trade carried on by the recipient through a branch or
agency in the United Kingdom.
(6)
The amount of income tax which the recipient may be liable to account for and
pay under regulations under subsection (4) is equal to the amount of the sum
representing income tax which the payer would have been required to deduct
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in accordance with regulations under section 906.
(7)
For the purposes of—
(a)
regulations under section 906 as applied by subsection (3), and
(b)
regulations under subsection (4),

the “gross amount” of a manufactured dividend to which this section applies
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is equal to the gross amount of the dividend of which it is representative.