Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 9 — Intellectual property: know-how and patents
Chapter 3 — Sales of patent rights
433

910
Profits charged under section 908
(1)
The profits charged under section 908 are—
(a)
the amount of the consideration, less
(b)
any expenditure incurred by the company wholly and exclusively in
the acquisition or disposal of the know-how.
5
(2)
Such expenditure may not be taken into account more than once, whether
under this section or otherwise.
(3)
This section needs to be read with section 926 (contributions to expenditure).
Chapter 3
Sales of patent rights
10
Introductory
911
Overview of Chapter
(1)
This Chapter—
(a)
applies the charge to corporation tax on income to profits from sales of
patent rights (see sections 912 and 913),
15
(b)
contains provision about how the amount chargeable is taxed (see
sections 914 to 918), and
(c)
contains related provision, including provision relevant to the
application of the Chapter (see sections 919 to 923).
(2)
Section 848 of ITA 2007, under which a sum representing income tax deducted
20
under section 910 of that Act (deduction from payment to non-UK residents in
respect of sale of patent rights) is treated as income tax paid by the recipient, is
also relevant to the tax treatment of payments made to non-UK resident
companies in respect of sales of patent rights.
Charge to tax
25
912
Charge to tax on profits from sales of patent rights
(1)
The charge to corporation tax on income applies to profits from sales by a
company of the whole or part of any patent rights.
(2)
Subsection (1) applies in the case of a non-UK resident company if the patent
is granted under the laws of the United Kingdom.
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(3)
In this Chapter “patent rights” means the right to do or authorise the doing of
anything which, but for the right, would be an infringement of a patent.
913
Profits charged under section 912
(1)
A company’s profits from the sale of the whole or part of patent rights are—
(a)
any capital sum comprised in the proceeds of sale, less
35
(b)
the deductible costs.
(2)
The deductible costs are—

Corporation Tax Bill
Part 9 — Intellectual property: know-how and patents
Chapter 3 — Sales of patent rights
434

(a)
the capital cost (if any) of the rights sold, and
(b)
any incidental expenses incurred by the company in connection with
the sale.
(3)
If—
(a)
the company acquired the rights sold, or the rights out of which they
5
were granted, by purchase,
(b)
the company has previously sold part of the purchased rights, and
(c)
the proceeds of that sale, after deducting any incidental expenses,
consisted wholly or partly of a capital sum,

the capital cost is reduced by that sum.
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(4)
References in this Chapter to the capital cost of patent rights are to any capital
sum included in any price paid by the company to purchase—
(a)
the rights, or
(b)
the rights out of which they were granted.
(5)
This section needs to be read with sections 924 (relief for expenses: patent
15
income) and 926 (contributions to expenditure).
Spreading of charge to tax
914
UK resident companies: proceeds of sale not received in instalments
(1)
This section applies if a company liable for tax under section 912—
(a)
is UK resident, and
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(b)
does not receive the proceeds of sale in instalments.
(2)
The appropriate fraction of the amount chargeable is taxed—
(a)
in the accounting period in which the company receives the proceeds
of sale (“the period of receipt”), and
(b)
in successive accounting periods, until the expiry of the 6-year period
25
beginning at the start of the period of receipt.
(3)
The appropriate fraction is the same fraction of the amount chargeable as the
accounting period in question is of 6 years (or, in the last period, such smaller
fraction of that amount as has not already been taxed).
(4)
The company may elect that the whole of the amount chargeable is to be taxed
30
instead in the period of receipt.
(5)
An election under subsection (4) must be made within the two-year period
beginning at the end of the period of receipt.
915
UK resident companies: proceeds of sale received in instalments
(1)
This section applies if a company liable for tax under section 912—
35
(a)
is UK resident, and
(b)
receives the proceeds of sale in instalments.
(2)
The appropriate fraction of the amount chargeable in respect of each
instalment is taxed—
(a)
in the accounting period in which the company receives the instalment
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(“the period of receipt”), and

Corporation Tax Bill
Part 9 — Intellectual property: know-how and patents
Chapter 3 — Sales of patent rights
435

(b)
in successive accounting periods, until the expiry of the 6-year period
beginning at the start of the period of receipt.
(3)
The appropriate fraction of the amount chargeable in respect of an instalment
is the same fraction of that amount as the accounting period in question is of 6
years (or, in the last period, such smaller fraction of the amount as has not
5
already been taxed).
(4)
The company may elect that the whole of any instalment is to be taxed instead
in the period of receipt.
(5)
An election under subsection (4) must be made within the two-year period
beginning at the end of the period of receipt.
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916
Non-UK resident companies: proceeds of sale not received in instalments
(1)
This section applies if a company liable for tax under section 912—
(a)
is not UK resident, and
(b)
does not receive the proceeds of sale in instalments.
(2)
The whole of the amount chargeable is taxed in the accounting period in which
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the company receives the proceeds (“the period of receipt”).
(3)
The company may elect instead that the amount chargeable—
(a)
is to be treated as arising rateably in the accounting periods ending 6
years from the start of the period of receipt, and
(b)
is taxed accordingly.
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(4)
An election under subsection (3) must be made within the two-year period
beginning at the end of the period of receipt.
(5)
The election has effect in relation to accounting periods of the company during
which the company is within the charge to corporation tax in respect of any
proceeds of the sale not consisting of a capital sum.
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(6)
Such repayments and assessments are to be made for each of the accounting
periods affected as are necessary to give effect to the election.
(7)
Subsection (6) is subject to the qualifications in section 920 (adjustments where
tax has been deducted).
917
Non-UK resident companies: proceeds of sale received in instalments
30
(1)
This section applies if a company liable for tax under section 912—
(a)
is not UK resident, and
(b)
receives the proceeds of sale in instalments.
(2)
The amount chargeable in respect of each instalment is taxed in the accounting
period in which the company receives the instalment (“the period of receipt”).
35
(3)
The company may, for any instalment, elect instead that the amount
chargeable in respect of the instalment—
(a)
is to be treated as arising rateably in the accounting periods ending 6
years from the start of the period of receipt, and
(b)
is taxed accordingly.
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Corporation Tax Bill
Part 9 — Intellectual property: know-how and patents
Chapter 3 — Sales of patent rights
436

(4)
An election under subsection (3) must be made within the two-year period
beginning at the end of the period of receipt.
(5)
The election has effect in relation to accounting periods of the company during
which the company is within the charge to corporation tax in respect of any
proceeds of the sale not consisting of a capital sum.
5
(6)
Such repayments and assessments are to be made for each of the accounting
periods affected as are necessary to give effect to the election.
(7)
Subsection (6) is subject to the qualifications in section 920 (adjustments where
tax has been deducted).
918
Winding up of a body corporate
10
(1)
If a body corporate which is liable for tax under section 912 commences to be
wound up, any amounts falling within subsection (2) are taxed in the
accounting period in which the winding up commences.
(2)
The amounts are—
(a)
any amounts which would have been chargeable in later accounting
15
periods under section 914(2) or 915(2) (UK resident companies:
spreading of charge to tax), and
(b)
any amounts which would have been chargeable in later accounting
periods under section 916(3) or 917(3) (non-UK resident companies:
election to spread charge to tax).
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Miscellaneous
919
Deduction of tax from payments to non-UK resident companies
(1)
This section applies if a non-UK resident company is liable for tax under
section 912 on profits from the sale of the whole or part of any patent rights.
(2)
The rules in section 913 allowing the capital cost (if any) of the rights sold to be
25
deducted in calculating the profits from the sale do not affect the amount of
income tax which is to be deducted under section 910 of ITA 2007.
(3)
No election made by the company under section 916(3) or 917(3) (election to
spread charge to tax) in relation to the proceeds of sale or any instalment affects
the amount of income tax which is to be deducted under section 910 of ITA
30
2007.
920
Adjustments where tax has been deducted
Where any sum has been deducted from a payment under section 910 of ITA
2007, any adjustment necessary—
(a)
because of section 919(2), or
35
(b)
because of an election under section 916(3) or 917(3),
must be made by way of repayment of tax.
921
Licences connected with patents
(1)
The acquisition of a licence in respect of a patent is treated for the purposes of
this Chapter as a purchase of patent rights.
40

Corporation Tax Bill
Part 9 — Intellectual property: know-how and patents
Chapter 4 — Relief from corporation tax on patent income
437

(2)
The grant of a licence in respect of a patent is treated for the purposes of this
Chapter as a sale of part of patent rights.
(3)
But the grant by a person entitled to patent rights of an exclusive licence is
treated for the purposes of this Chapter as a sale of the whole of those rights.
(4)
In subsection (3) “exclusive licence” means a licence to exercise the rights to the
5
exclusion of the grantor and all other persons for the period remaining until the
rights come to an end.
922
Rights to acquire future patent rights
(1)
If a sum is paid to obtain a right to acquire future patent rights, then for the
purposes of this Chapter—
10
(a)
the payer is treated as purchasing patent rights for that sum, and
(b)
the recipient is treated as selling patent rights for that sum.
(2)
If a person—
(a)
pays a sum to obtain a right to acquire future patent rights, and
(b)
subsequently acquires those rights,
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the expenditure is to be treated for the purposes of this Chapter as having been
expenditure on the purchase of those rights.
(3)
In this section “a right to acquire future patent rights” means a right to acquire
in the future patent rights relating to an invention in respect of which the
patent has not yet been granted.
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923
Sums paid for Crown use etc treated as paid under licence
(1)
This section applies if an invention which is the subject of a patent is used by
or for the service of—
(a)
the Crown under sections 55 to 59 of the Patents Act 1977 (c. 37), or
(b)
the government of a country outside the United Kingdom under
25
corresponding provisions of the law of that country.
(2)
The use is treated for the purposes of this Chapter as having taken place under
licence.
(3)
Sums paid in respect of the use are treated for the purposes of this Chapter as
having been paid under a licence.
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Chapter 4
Relief from corporation tax on patent income
924
Relief for expenses: patent income
(1)
Relief may be claimed under this section for patent application and
maintenance expenses.
35
(2)
In this section “patent application and maintenance expenses” means expenses
incurred by a company in connection with—
(a)
the grant or maintenance of a patent,
(b)
the extension of the term of a patent, or
(c)
a rejected or abandoned application for a patent,
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Corporation Tax Bill
Part 9 — Intellectual property: know-how and patents
Chapter 5 — Supplementary
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but not incurred for the purposes of any trade carried on by the company.
(3)
Relief may not be claimed under this section for patent application and
maintenance expenses unless they are expenses which would, if incurred for
the purposes of a trade, have been allowable as a deduction in calculating the
profits of the trade.
5
(4)
This section needs to be read with section 926 (contributions to expenditure).
925
How relief is given under section 924
(1)
This section sets out how relief for expenses is given where a company makes
a claim under section 924.
(2)
The amount of the expenses must be deducted from or set off against the
10
company’s income from patents for the accounting period in which the
expenses were incurred.
(3)
If the amount to be allowed is greater than the amount of the company’s
income from patents for that accounting period, then (so long as the company
remains within the charge to corporation tax) the excess must be deducted
15
from or set off against the company’s income from patents for the next
accounting period, and so on for subsequent accounting periods, without the
need for a further claim.
(4)
In this section “income from patents” means—
(a)
royalties or other sums paid in respect of the use of a patent,
20
(b)
amounts on which tax is payable under section 912, 918 or 1272, and
(c)
amounts on which tax is payable under—
(i)
section 472(5) of CAA 2001 (patent allowances: balancing
charges), or
(ii)
paragraph 100 of Schedule 3 to that Act (balancing charges in
25
respect of pre-1st April 1986 expenditure on purchase of patent
rights),

but does not include any amount chargeable to income tax.
(5)
In this section references to a company’s income from patents are to the income
after any allowance has been deducted from or set off against it under section
30
480 of CAA 2001 (certain allowances against income from patents).
Chapter 5
Supplementary
926
Contributions to expenditure
(1)
For the purposes of sections 910, 913 and 924, the general rule is that a company
35
is to be regarded as not having incurred expenditure so far as it has been, or is
to be, met (directly or indirectly) by—
(a)
a public body, or
(b)
a person other than the company.
(2)
In this Chapter “public body” means the Crown or any government, local
40
authority or other public authority (whether in the United Kingdom or
elsewhere).

Corporation Tax Bill
Part 9 — Intellectual property: know-how and patents
Chapter 5 — Supplementary
439

(3)
The general rule does not apply to the expenses mentioned in section 913(2)(b)
(incidental expenses incurred by a seller of patent rights).
(4)
The general rule is subject to the exception in section 927.
927
Contributions not made by public bodies nor eligible for tax relief
(1)
A company is to be regarded as having incurred expenditure (despite section
5
926(1)) so far as the requirements in subsections (2) and (3) are met in relation
to the expenditure.
(2)
The first requirement is that the person meeting the company’s expenditure
(“X”) is not a public body.
(3)
The second requirement is that—
10
(a)
no allowance can be made under Chapter 2 of Part 11 of CAA 2001
(contribution allowances) in respect of X’s expenditure, and
(b)
the expenditure is not allowed to be deducted in calculating the profits
of a trade, profession or vocation carried on by X.
(4)
When determining for the purposes of subsection (3)(a) whether such an
15
allowance can be made, assume that X is within the charge to tax.
928
Exchanges
(1)
In this Part references to the sale of property include the exchange of property.
(2)
In this section—
references to property include know-how, and
20
references to the sale of property include the disposal of know-how.
(3)
For the purposes of subsection (1), any provision of this Part referring to a sale
has effect with the necessary modifications, including, in particular, those in
subsections (4) and (5).
(4)
References to the proceeds of sale and to the price include the consideration for
25
the exchange.
(5)
References to capital sums included in the proceeds of sale include references
to so much of the consideration for the exchange as would have been a capital
sum if it had been a money payment.
929
Apportionment where property sold together
30
(1)
Any reference in this Part to the sale of property includes the sale of that
property together with other property.
(2)
In this section—
references to property include know-how, and
references to the sale of property include the disposal of know-how.
35
(3)
For the purposes of subsection (1), all property sold as a result of one bargain
is to be treated as sold together even though—
(a)
separate prices are, or purport to be, agreed for separate items of that
property, or
(b)
there are, or purport to be, separate sales of separate items of that
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property.