Chapter 7: Deduction from other payments connected with intellectual property
Overview
2753.This Chapter requires the deduction of sums representing income tax from certain payments connected with intellectual property. It is based on sections 4, 349(1), 349ZA, 524(3), 532, 533 and 536 to 537B of ICTA.
2754.The payments concerned are:
royalties or periodical payments in respect of copyright and design rights, and payments in respect of public lending rights (“relevant intellectual property rights”) where the usual place of the owner or seller is outside the United Kingdom; and
proceeds of sale by a non-UK resident of patent rights, if the proceeds of sale are, or include, a capital sum.
Section 906: Certain royalties etc where usual place of abode of owner is abroad
2755.This section requires the deduction of sums representing income tax from certain payments in respect of a “relevant intellectual property right” (see section 907). It is based on sections 4(1) and (2), 536(1) and (2), 537 and 537B(1) and (2) of ICTA.
2756.Subsection (1)(b) makes explicit that deduction is to apply only where the payment is charged to income or corporation tax. See Change 140 in Annex 1.
2757.The payments concerned are those where the owner of the intellectual property right, or a past owner who has assigned the right but receives payments in respect of it, has a usual place of abode outside the United Kingdom.
2758.For discussion of “usual place of abode”, see the commentary on section 874.
2759.But the duty to deduct does not apply in cases where the payment is for copies of works or articles that have been exported from the United Kingdom for distribution elsewhere.
2760.Subsection (5) makes it explicit that the rate at which deduction must be made is the basic rate and imposes the duty to deduct on the person by or through whom the payment is made. But see the commentary on section 908 for special rules affecting some paying agents.
Section 907: Meaning of “relevant intellectual property right”
2761.This section defines “relevant intellectual property right” for the purposes of section 906. It is based on sections 536(1) and (2), 537 and 537B(1) and (2) of ICTA.
2762.Subsection (2) qualifies the basic categories by excluding copyrights in films and expanding the definition of “right in a design” to reflect the fact that although registered designs were protected in UK law from 1949, by the Registered Designs Act 1949, “design rights” in unregistered designs were not protected until Part III of the Copyright, Designs and Patents Act 1988 came into force in 1989.
Section 908: Royalty payments etc made through UK resident agents
2763.This section addresses issues that arise when a payment is made, not by the owner of the right, but by an agent who in turn is entitled to deduct a commission from the payment. It is based on sections 536(3) and (4) and 537B(3) and (4) of ICTA.
2764.The normal rule is that the payment is to be reduced by the amount of commission before calculating the amount that is to be deducted.
2765.But if the agent does not know the amount of commission, or does not know that it is payable, the sum representing income tax must be calculated on the gross amount of the payment, and that amount must be accounted for.
Section 909: Royalty payments: further provision
2766.This section supplements the provisions in section 906. It is based on sections 536(1), (5) and (6) and 537B(1), (5) and (6) of ICTA.
Section 910: Proceeds of a sale of patent rights: payments to non-UK residents
2767.This section requires the deduction of sums representing income tax from the proceeds of sale of patent rights where the seller is non-UK resident and the proceeds are, or include, a “capital sum”. It is based on sections 4, 349(1), 349ZA, 524(3), 532 and 533 of ICTA.
2768.Section 524(3) of ICTA will continue to apply for corporation tax.
2769.Subsections (2) and (3) give details of the duty to deduct, and make it explicit that the rate at which deduction must be made is the basic rate. Expenses of the sale, if deducted before payment is made, reduce the amount of the proceeds, as does any element of those proceeds not consisting of a capital sum. The income tax must then be calculated on the amount of the proceeds, as so reduced.
2770.Subsection (4) extends the provisions of this section to licences connected with patents, and rights to acquire future patent rights. This subsection is based on the interpretative provisions of section 533 of ICTA.
2771.Subsection (5) defines “capital sum” by reference to section 4 of CAA. It does not include any sum that is taken into account in computing trading profits or that constitutes earnings from an employment or office.
2772.Under section 588 of ITTOIA a seller of patent rights who originally paid a capital sum on acquisition of those rights (the capital sum on acquisition) can deduct it from the capital sum on which income tax is charged on the sale. But under section 595 of ITTOIA, when computing the amount of income tax to be deducted from the capital sum on sale, the capital sum on acquisition cannot be deducted from it (subsection (6)(a)).
2773.Nor is the amount of income tax to be deducted affected by the provisions about spreading of the capital sum, and payment of it by instalments, under section 524(9) of ICTA (subsection (6)(b)).