Textual Amendments
F1Pt. 8A inserted (with effect in accordance with Sch. 2 paras. 7, 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 2 para. 1(1)
(1)For the purposes of this Part “relevant IP income” means income falling within any of the Heads set out in—
(a)subsection (2) (sales income),
(b)subsection (6) (licence fees),
(c)subsection (7) (proceeds of sale etc),
(d)subsection (8) (damages for infringement),
(e)subsection (9) (other compensation).
This is subject to section 357CE (excluded income).
(2)Head 1 is income arising from the sale by the company of any of the following items—
(a)items in respect of which a qualifying IP right held by the company has been granted (“qualifying items”);
(b)items incorporating one or more qualifying items;
(c)items that are wholly or mainly designed to be incorporated into items within paragraph (a) or (b).
(3)For the purposes of this Part an item and its packaging are not to be treated as a single item, unless the packaging performs a function that is essential for the use of the item for the purposes for which it is intended to be used.
(4)In subsection (3) “packaging”, in relation to an item, means any form of container or other packaging used for the containment, protection, handling, delivery or presentation of the item, including by way of attaching the item to, or winding the item round, some other article.
(5)In a case where a qualifying item and an item that is designed to incorporate that item (“the parent item”) are sold together as, or as part of, a single unit for a single price, the reference in subsection (2)(b) to an item incorporating a qualifying item includes a reference to the parent item.
(6)Head 2 is income consisting of any licence fee or royalty which the company receives under an agreement granting another person any of the following rights only—
(a)a right in respect of any qualifying IP right held by the company,
(b)any other right in respect of a qualifying item or process, and
(c)in the case of an agreement granting any right within paragraph (a) or (b), a right granted for the same purposes as those for which that right was granted.
In this subsection “qualifying process” means a process in respect of which a qualifying IP right held by the company has been granted.
(7)Head 3 is any income arising from the sale or other disposal of a qualifying IP right or an exclusive licence in respect of such a right.
(8)Head 4 is any amount received by the company in respect of an infringement, or alleged infringement, of a qualifying IP right held by the company at the time of the infringement or alleged infringement.
(9)Head 5 is any amount of damages, proceeds of insurance or other compensation, other than an amount in respect of an infringement or alleged infringement of a qualifying IP right, which is received by the company in respect of an event and—
(a)is paid in respect of any items that fell within subsection (2) at the time of that event, or
(b)represents a loss of income which would, if received by the company at the time of that event, have been relevant IP income.
(10)But income is not relevant IP income by virtue of subsection (8) or (9) unless the event in respect of which the income is received, or any part of that event, occurred at a time when—
(a)the company was a qualifying company, and
(b)an election under section 357A had effect in relation to it.
(11)In a case where the whole of that event does not occur at such a time, subsection (8) or (9) (as the case may be) applies only to so much of the amount received by the company in respect of the event as on a just and reasonable apportionment is properly attributable to such a time.
(12)Any reference in this section to a qualifying IP right held by the company includes a reference to a qualifying IP right in respect of which the company holds an exclusive licence.
(1)This section applies where—
(a)a company, for the purposes of any trade of the company, holds any rights mentioned in paragraph (a), (b) or (c) of section 357BB(1) (rights to which this Part applies) or an exclusive licence in respect of any such rights, and
(b)the rights are relevant qualifying IP rights.
(2)For the purposes of this section a qualifying IP right is a “relevant qualifying IP right” in relation to an accounting period if—
(a)the total gross income of the trade of the company for the accounting period includes any income arising from things done by the company that involve the exploitation by the company of that right, and
(b)that income is not relevant IP income or excluded income.
Such income is referred to in this section as “IP-derived income”.
(3)The company may elect that the notional royalty in respect of the trade for the accounting period is to be treated for the purposes of this Part as if it were relevant IP income.
(4)The notional royalty in respect of a trade of a company for an accounting period is the appropriate percentage of the IP-derived income for that accounting period.
(5)The “appropriate percentage” is the proportion of any IP-derived income for an accounting period which the company would pay another person (“P”) for the right to exploit the relevant qualifying IP rights in that accounting period if the company were not otherwise able to exploit them.
(6)For the purposes of determining the appropriate percentage under this section, assume that—
(a)the company and P are dealing at arm's length,
(b)the company, or the company and persons authorised by it, will have the right to exploit the relevant qualifying IP rights to the exclusion of any other person (including P),
(c)the company will have the same rights in relation to the relevant qualifying IP rights as it actually has,
(d)the relevant qualifying IP rights are conferred on the relevant day,
(e)the appropriate percentage for the accounting period is determined at the beginning of the accounting period,
(f)the appropriate percentage for the accounting period will apply for each succeeding accounting period for which the company will have the right to exploit the relevant qualifying IP rights, and
(g)no income other than IP-derived income will arise from anything done by the company that involves the exploitation by the company of the relevant qualifying IP rights.
(7)In subsection (6)(d) “the relevant day”, in relation to a relevant qualifying IP right or a licence in respect of such a right, means—
(a)the first day of the accounting period, or
(b)if later, the day on which the company first began to hold the right or licence.
(8)In determining the appropriate percentage, the company must act in accordance with—
(a)Article 9 of the OECD Model Tax Convention, and
(b)the OECD transfer pricing guidelines.
(9)In this section “excluded income” means any income falling within any of the Heads in section 357CE.
(1)For the purposes of this Part income falling within any of the Heads set out in the following subsections is not relevant IP income—
(a)subsection (2) (ring fence income),
(b)subsection (3) (income attributable to non-exclusive licences).
(2)Head 1 is income arising from oil extraction activities or oil rights.
In this subsection “oil extraction activities” and “oil rights” have the same meaning as in Part 8 (see sections 272 and 273).
(3)Head 2 is income which on a just and reasonable apportionment is properly attributable to a licence (a “non-exclusive licence”) held by the company which—
(a)is a licence in respect of an item or process, but
(b)is not an exclusive licence in respect of a qualifying IP right.
(4)In a case where—
(a)a company holds an exclusive licence in respect of a qualifying IP right, and
(b)the licence also confers on the company (or on the company and persons authorised by it) any right in respect of the invention otherwise than to the exclusion of all other persons,
the licence is to be treated for the purposes of this Part as if it were two separate licences, one an exclusive licence that does not confer any such rights, and the other a non-exclusive licence conferring those rights.
(1)This section applies to any income that—
(a)is mixed income, or
(b)is paid under a mixed agreement.
(2)“Mixed income” means the proceeds of sale in a case where an item falling within subsection (2) of section 357CC and an item not falling within that subsection are sold together as, or as part of, a single unit for a single price.
(3)A “mixed agreement” is an agreement providing for—
(a)one or more of the matters in paragraphs (a) to (c) of subsection (4), and
(b)one or more of the matters in paragraphs (d) to (g) of that subsection.
(4)The matters are—
(a)the sale of an item falling within section 357CC(2),
(b)the grant of any right falling within paragraph (a), (b) or (c) of section 357CC(6),
(c)a sale or disposal falling within section 357CC(7),
(d)the sale of any other item,
(e)the grant of any other right,
(f)any other sale or disposal,
(g)the provision of any services.
(5)So much of the income as on a just and reasonable apportionment is properly attributable to—
(a)the sale of an item falling within section 357CC(2),
(b)the grant of any right falling within paragraph (a), (b) or (c) of section 357CC(6), or
(c)a sale or disposal falling within section 357CC(7),
is to be regarded for the purposes of this Part as relevant IP income.
(6)But where the amount of income that on such an apportionment is properly attributable to any of the matters in paragraphs (d) to (g) of subsection (4) is a trivial proportion of the income to which this section applies, all of that income is to be regarded for the purposes of this Part as relevant IP income.]