Finance Act 2018

21 Intangible fixed assets: transactions between related parties

(1) In section 844 of CTA 2009 (overview of Chapter 13 of Part 8: transactions between related parties) after subsection (2) insert—

“(2ZA) Sections 849AB to 849AD make provision for the grant of a licence or other right by a company to a related party, or vice versa, to be treated as being at market value.”

(2) After section 849A of that Act insert—

“Grants treated as being at market value

849AB Grant of licence or other right treated as at market value

(1) This section applies if—

(a) a company which holds an intangible asset grants a licence or other right in respect of the asset to a related party, or

(b) a company is granted a licence or other right in respect of an intangible asset by a related party that holds the asset.

(2) The grant of the licence or other right is treated for all purposes of the Taxes Acts as being at market value as respects the grantor if—

(a) the licence or other right was actually granted at less than market value, and

(b) condition A or B is met.

(3) The grant of the licence or other right is treated for all purposes of the Taxes Acts as being at market value as respects the grantee if—

(a) the licence or other right was actually granted at more than market value, and

(b) condition A or B is met.

(4) Condition A is that the asset is a chargeable intangible asset in relation to the grantor immediately before the licence or right in respect of it is granted.

(5) Condition B is that the licence or right is a chargeable intangible asset in relation to the grantee immediately after it is granted.

(6) This section is subject to—

(a) section 849AC (grants not at arm’s length), and

(b) section 849AD (grants involving other taxes).

(7) References in subsection (1) to a related party in relation to a company are to be read as including references to a person in circumstances where the participation condition is met as between that person and the company.

(8) References in subsection (7) to a company include a firm in a case where, for the purposes of section 1259, references in subsection (1) to a company are read as references to the firm.

(9) Section 148 of TIOPA 2010 (when the participation condition is met) applies for the purposes of subsection (7) as it applies for the purposes of section 147(1)(b) of TIOPA 2010.

(10) Subsection (11) applies where—

(a) a gain on the grant by a firm of a licence or other right in respect of an intangible fixed asset is a gain to be taken into account for the purposes of section 1259, and

(b) for those purposes, references in subsection (1) to a company are read as references to the firm.

(11) Where this subsection applies, the gain referred to in subsection (10)(a) is to be treated for the purposes of this section as if it were a chargeable realisation gain for the purposes of section 741(1) (meaning of “chargeable intangible asset”).

(12) In this section—

• “market value” means the price the licence or right might reasonably be expected to fetch on a sale in the open market, and

• “the Taxes Acts” means the enactments relating to income tax, corporation tax or chargeable gains.

849AC Grants not at arm’s length

(1) This section applies if the consideration for the grant of a licence or other right would, but for this section, fall to be adjusted as respects one of the parties to the grant (“the relevant party”) under both—

(a) section 849AB, and

(b) Part 4 of TIOPA 2010 (provision not at arm’s length).

(2) The consideration for the grant is not to be adjusted as respects the relevant party under Part 4 of TIOPA 2010 if the adjustment that falls to be made under section 849AB is greater than the adjustment that would otherwise fall to be made under that Part.

(3) The consideration for the grant is not to be adjusted under section 849AB if the adjustment that falls to be made as respects the relevant party under Part 4 of TIOPA 2010 is greater than or equal to the adjustment that would otherwise fall to be made under that section.

849AD Grants involving other taxes

(1) This section applies if—

(a) in a case where section 849AB applies and the licence or other right is granted by the company to a related party, the grant is at less than its market value,

(b) in a case where that section applies and the licence or other right is granted to the company by a related party, the grant is at more than its market value, and

(c) conditions A and B apply.

(2) Condition A is that the related party—

(a) is not a company, or

(b) is a company in relation to which—

(i) in a case within subsection (1)(a), the licence or other right is not a chargeable intangible asset immediately after the grant to it, or

(ii) in a case within subsection (1)(b), the relevant asset is not a chargeable intangible asset immediately before the grant by it.

(3) Condition B is that the grant of the licence or right—

(a) gives rise to an amount to be taken into account in calculating any person’s income, profits or losses for tax purposes because of a relevant provision, or

(b) would do so apart from section 849AB(2) or (3).

(4) If this section applies, section 849AB(2) and (3) does not apply in relation to the calculation referred to in subsection (3) for the purposes of any relevant provision.

(5) In this section “relevant provision” means—

(a) Chapter 2 of Part 23 of CTA 2010 (matters which are distributions), except section 1000(2), and

(b) Part 3 of ITEPA 2003 (employment income: earnings and benefits etc treated as earnings).”

(3) The amendments made by this section apply in relation to a grant of a licence or other right made on or after 22 November 2017, unless it is made pursuant to an obligation, under a contract, that was unconditional before that date.

(4) For the purposes of subsection (3), an obligation is “unconditional” if it may not be varied or extinguished by the exercise of a right (whether under the contract or otherwise).