Finance Act 2013

Finance Act 2013

2013 CHAPTER 29

Introduction

Section 15: Abolition of Tax Relief for Patent Royalties

Summary

1. Section 15 abolishes income tax relief for certain payments of patent royalties.

Details of the Section

2. Subsection 1 provides that subsections (2) and (3) amend Chapter 4 of Part 8 of Income Tax Act 2007 (ITA) which provides income tax relief for payments of patent royalties.

3. Subsection 2 amends section 448(1)(b) ITA by removing the reference to section 903(5) ITA and the words ‘and patent royalties’. Section 903(5) ITA contains the requirement for individuals to deduct an amount representing basic rate income tax from payments of patent royalties. By removing these references the subsection has the effect of abolishing the relief for payments of patent royalties made by individuals.

4. Subsection 3 similarly amends section 449(1)(b) ITA by removing the reference to section 903(6) and the words ‘and patent royalties’. Section 903(6) contains the requirement for persons other than individuals to deduct an amount representing basic rate income tax from payments of patent royalties. By removing these references the subsection has the effect of abolishing the relief for payments of patent royalties made by other persons such as trustees, personal representatives and non-resident companies within the charge to income tax.

5. Subsection 4 makes consequential amendments to ITA to remove redundant references to patent royalties.

6. Subsection 5 commences the provision from 5 December 2012. Relief will therefore not be available for payments of patent royalties made on or after that date.

Background

7. The relief which is abolished relates only to payments of patent royalties which are not deductible in calculating income from any source, such as trading. Where patent royalties are deductible in calculating income from any source they will continue to be relieved in that way.

8. The relief is being abolished to counter known avoidance and to simplify the income tax code.