Corporation Tax Act 2009 (c. 4)

Part 9 U.K. Intellectual property: know-how and patents

Chapter 3 U.K. Sales of patent rights

Introductory U.K.

911 Overview of Chapter U.K.

(1) This Chapter—

(a) applies the charge to corporation tax on income to profits from sales of patent rights (see sections 912 and 913),

(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 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 U.K.

912 Charge to tax on profits from sales of patent rights U.K.

(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.

(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 U.K.

(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

(b) the deductible costs.

(2) The deductible costs are—

(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 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.

(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 income) and 926 (contributions to expenditure).

Spreading of charge to tax U.K.

914 UK resident companies: proceeds of sale not received in instalments U.K.

(1) This section applies if a company liable for tax under section 912—

(a) is UK resident, and

(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 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 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 U.K.

(1) This section applies if a company liable for tax under section 912—

(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 (“the period of receipt”), and

(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 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.

916 Non-UK resident companies: proceeds of sale not received in instalments U.K.

(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 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.

(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.

(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 U.K.

(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”).

(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.

(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.

(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 U.K.

(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 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).

Miscellaneous U.K.

919 Deduction of tax from payments to non-UK resident companies U.K.

(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 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 2007.

920 Adjustments where tax has been deducted U.K.

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

(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 U.K.

(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.

(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 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 U.K.

(1) If a sum is paid to obtain a right to acquire future patent rights, then for the purposes of this Chapter—

(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,

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.

923 Sums paid for Crown use etc treated as paid under licence U.K.

(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 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.