Section 579: Charge to tax on royalties and other income from intellectual property
2261.This section charges to tax royalties and other income from intellectual property. It is based on section 18 of ICTA.
2262.The section sets out a new provision creating a specific charge to tax on royalties and other income from intellectual property. The source legislation uses general principles to tax such income. In the source legislation, income from intellectual property is charged:
as annual payments under Schedule D Case III;
as profits of a trade under Schedule D Case I;
as annual profits or gains under Schedule D Case VI; or
as income arising from possessions out of the United Kingdom under Schedule D Case V.
The new charge covers income charged in the source legislation under the heads mentioned above, except that trading income derived from intellectual property is to be taxed not under section 579 but under Part 2 of this Act. The rules set out in the section are not intended to widen or restrict the scope of the charges under Schedule D in the source legislation.
2263.The charge embraces royalties which are UK source annual payments (Schedule D Case III in the source legislation), overseas income from intellectual property (Schedule D Case V in the source legislation) and casual profits of an income nature from the exploitation of intellectual property outside the course of a trade (Schedule D Case VI in the source legislation). The charges relating to capital sums arising from the disposal of know-how in certain circumstances and capital sums arising from the sale of patent rights are dealt with further on in this Chapter.
2264.Subsection (1) contains the charge on royalties and other income from intellectual property. Royalties are mentioned specifically, even though they are covered by the words “income from intellectual property”, since most of the income within the scope of this section is likely to be royalties. However, no attempt has been made to define the term “royalties”. The source legislation does not do so. Although definitions have been suggested by the courts they are not appropriate to include here as the word “royalties” has only been used to assist the courts to determine whether a payment or receipt is of a revenue or capital nature.
2265.Subsection (2) defines intellectual property for the purposes of this section. Intellectual property is an area of rapid change. Because of this, it is not possible to define intellectual property by way of an exhaustive list. Subsection (2)(b) therefore charges United Kingdom source royalties and other income from rights which correspond to or are similar to those listed in subsection (2)(a). Subsection (2)(c) covers rights under foreign law which correspond to or are similar to those listed in subsection (2)(a). Also within the scope of the charge is income from any information or technique not protected by a right within subsection (2)(a), (b) or (c) of this section. So subsection (2)(d) provides the flexibility to bring within the scope of the section income derived from new types of intellectual property as changes occur in this field.