(1) This section applies where a company makes an election under section 357CL for small claims treatment for an accounting period.
(2) The small claims amount in relation to each trade of the company for the accounting period is—
(a) if the amount in subsection (3) is lower than the small claims threshold, 75% of the qualifying residual profit of the trade for the accounting period;
(b) in any other case, the amount given by—
SCT T
where—
SCT is the small claims threshold, and
T is the number of trades of the company.
(3) The amount referred to in subsection (2)(a) is—
0.75 × Q R P
where QRP is the aggregate of the amounts of qualifying residual profit of each trade of the company for the accounting period (but see subsection (4)).
(4) Any amount of qualifying residual profit of a trade of the company that is not greater than nil is to be disregarded for the purposes of subsection (3).
(5) If no other company is a related 51% group company of the company in the accounting period, the small claims threshold is £1,000,000.
(6) If one or more other companies are related 51% group companies of the company, in the accounting period, the small claims threshold is—
£ 1,000,000 1 + N
where N is the number of those related 51% group companies in relation to which an election under section 357A has effect for the accounting period.
(7) For an accounting period of less than 12 months, the small claims threshold is proportionately reduced.
(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) The marketing assets return figure in relation to a trade of a company for an accounting period is—
NMR − AMR
where—
NMR is the notional marketing royalty in respect of the trade for the accounting period (see section 357CO), and
AMR is the actual marketing royalty in respect of the trade for the accounting period (see section 357CP).
(2) Where—
(a) AMR is greater than NMR, or
(b) the difference between NMR and AMR is less than 10% of the qualifying residual profit of the trade for the accounting period,
the marketing assets return figure is nil.
(1) The notional marketing royalty in respect of a trade of a company for an accounting period is the appropriate percentage of the relevant IP income for that accounting period.
In this section “relevant IP income”, in relation to a trade of a company for an accounting period, means so much of the total gross income of the trade for the accounting period as is relevant IP income.
(2) The “appropriate percentage” is the proportion of any relevant IP income for an accounting period which the company would pay another person (“P”) for the right to exploit the relevant marketing assets in that accounting period if the company were not otherwise able to exploit them.
(3) For the purposes of this section a marketing asset is a “relevant marketing asset” in relation to an accounting period if the relevant IP 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 marketing asset.
(4) 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 marketing assets to the exclusion of any other person (including P),
(c) the company will have the same rights in relation to the relevant marketing assets as it actually has,
(d) the right to exploit the relevant marketing assets is 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 marketing assets, and
(g) no income other than relevant IP income will arise from anything done by the company that involves the exploitation by the company of the relevant marketing assets.
(5) In subsection (4)(d) “the relevant day”, in relation to a relevant marketing asset, means—
(a) the first day of the accounting period, or
(b) if later, the day on which the company first acquired the relevant marketing asset or the right to exploit the asset.
(6) 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.
(7) In this section “marketing asset” means any of the following (whether or not capable of being transferred or assigned)—
(a) anything in respect of which proceedings for passing off could be brought, including a registered trade mark (within the meaning of the Trade Marks Act 1994),
(b) anything that corresponds to a marketing asset within paragraph (a) and is recognised under the law of a country or territory outside the United Kingdom,
(c) any signs or indications (so far as not falling within paragraph (a) or (b)) which may serve, in trade, to designate the geographical origin of goods or services, and
(d) any information which relates to customers or potential customers of the company, or any other member of a group of which the company is a member, and is intended to be used for marketing purposes.
(1) The actual marketing royalty in respect of a trade of a company for an accounting period is X% of the aggregate of any sums which—
(a) were paid by the company for the purposes of acquiring any relevant marketing assets, or the right to exploit any such assets, and
(b) were brought into account as debits in calculating the profits of the trade for the accounting period.
(2) In this section—
“relevant marketing assets” has the same meaning as in section 357CO, and
“X%” is the percentage given by Step 2 in section 357C(1).
(1) This section applies where a company—
(a) holds a right mentioned in paragraph (a), (b) or (c) of section 357BB(1) (rights to which this Part applies) or an exclusive licence in respect of such a right, or
(b) would hold such a right or licence but for the fact that the company disposed of any rights in the invention or (as the case may be) the licence before the right was granted.
(2) The company may elect that, for the purposes of determining the relevant IP profits of a trade of the company for the accounting period in which the right is granted, there is to be added the amount determined in accordance with subsection (3) (the “ additional amount ”).
(3) The additional amount is the difference between—
(a) the aggregate of the relevant IP profits of the trade for each relevant accounting period, and
(b) the aggregate of what the relevant IP profits of the trade for each relevant accounting period would have been if the right had been granted on the relevant day.
(4) For the purposes of determining the additional amount, the amount of any relevant IP profits to which section 357A does not apply by virtue of Chapter 5 (relevant IP losses) is to be disregarded.
(5) In this section “relevant accounting period” means—
(a) the accounting period of the company in which the right is granted, and
(b) any earlier accounting period of the company which meets the conditions in subsection (6).
(6) The conditions mentioned in subsection (5)(b) are—
(a) that it is an accounting period for which an election made by the company under section 357A has effect,
(b) that it is an accounting period for which the company is a qualifying company, and
(c) that it ends on or after the relevant day.
(7) In this section “the relevant day” is the later of—
(a) the first day of the period of 6 years ending with the day on which the right is granted, or
(b) the day on which—
(i) the application for the grant of the right was filed, or
(ii) in the case of a company that holds an exclusive licence in respect of the right, the licence was granted.
(8) Where the company would be a qualifying company for an accounting period but for the fact that the right had not been granted at any time during that accounting period, the company is to be treated for the purposes of this section as if it were a qualifying company for that accounting period.
(9) Where the company would be a qualifying company for the accounting period in which the right was granted but for the fact that the company disposed of the rights or licence mentioned in subsection (1)(b) before the right was granted, the company is to be treated for the purposes of section 357A as if it were a qualifying company for that accounting period.
357D Alternative method of calculating relevant IP profits: “streaming”
(1) A company may elect to apply section 357DA (instead of section 357C) for the purposes of determining the relevant IP profits of any trade of the company for an accounting period in a case where—
(a) the accounting period began before 1 July 2021,
(b) the company is not a new entrant (see section 357A(11)), and
(c) none of the amounts of relevant IP income brought into account as credits in calculating the profits of the trade for the accounting period is properly attributable to a new qualifying IP right (see section 357BP).
(2) An election made under subsection (1) is known as a “streaming election”.
(3) A streaming election has effect—
(a) for the accounting period for which it is made, and
(b) for each subsequent accounting period.
This is subject to section 357DB.
(4) A company must apply section 357DA (instead of section 357C) for the purposes of determining the relevant IP profits of a trade of the company for an accounting period in a case mentioned in subsection (1) if any of the mandatory streaming conditions in section 357DC is met in relation to the trade for the period.
(1) To determine the relevant IP profits of a trade of a company for an accounting period in accordance with this section—
Step 1 Take any amounts which are brought into account as credits in calculating the profits of the trade for the accounting period, other than any amounts of finance income (see section 357BG), and divide them into two “streams”, amounts of relevant IP income (see sections 357BH to 357BHC) and amounts that are not amounts of relevant IP income. The stream consisting of relevant IP income is “the relevant IP income stream”.
Step 2 Take any amounts which are brought into account as debits in calculating the profits of the trade for the accounting period, other than any amounts referred to in section 357CG(3), and allocate them on a just and reasonable basis between the two streams. (See also section 357CG(5).)
Step 3 Deduct from the relevant IP income stream the amounts allocated to that stream under Step 2.
Step 4 Deduct from the amount given by Step 3 the routine return figure in relation to the trade for the accounting period (see subsection (4)). The amount given by this step is the “qualifying residual profit”.
If the amount of the qualifying residual profit is not greater than nil, go to Step 7.
Step 5 If the company has made an election under section 357CL for small claims treatment, calculate the small claims amount in relation to the trade (see section 357CM). If the company has not, go to Step 6.
Step 6 Deduct from the qualifying residual profit the marketing assets return figure in relation to the trade for the accounting period (see section 357CN and subsection (6)).
Step 7 If the company has made an election under section 357CQ (which provides in certain circumstances for profits arising before the grant of a right to be treated as relevant IP profits), add to the amount given by Step 5 or 6 (or, if the amount of the qualifying residual profit was not greater than nil, Step 4) any amount determined in accordance with subsection (3) of that section.
(2) If the amount given by subsection (1) is greater than nil, that amount is the relevant IP profits of the trade for the accounting period.
(3) If the amount given by subsection (1) is less than nil, that amount is the relevant IP losses of the trade for the accounting period (see Chapter 5).
(4) The routine return figure, in relation to a trade of a company for an accounting period, is 10% of the aggregate of any routine deductions which—
(a) have been made by the company in calculating the profits of the trade for the accounting period, and
(b) have been allocated to the relevant IP income stream under Step 2.
In this subsection “routine deductions” is to be read in accordance with sections 357BJA and 357BJB.
(5) Subsections (2) and (3) of section 357CI have effect for the purposes of subsection (4) of this section as they have effect for the purposes of that section.
(6) For the purposes of determining the marketing assets return figure in Step 6, section 357CP (actual marketing royalty) has effect as if the reference to X% of the aggregate of any sums falling within subsection (1) of that section were a reference to the aggregate of any such sums which have been allocated to the relevant IP income stream under Step 2.
(1) In this section “method of allocation” means the method of allocating, for the purposes of Step 2 in section 357DA(1), the amounts mentioned in that step.
(2) A company that applies section 357DA for the purposes of determining the relevant IP profits of a trade of the company for an accounting period must use the same method of allocation in relation to the trade for that accounting period as it used in the last accounting period of the company for which it applied that section for the purposes of determining the relevant IP profits of the trade.
(3) But subsection (2) does not apply if there is a change of circumstances relating to the trade which makes the use of that method of allocation in relation to the trade for the accounting period inappropriate.
(4) In such a case, the company may—
(a) use a different method of allocation in relation to the trade for the accounting period (and subsection (2) applies accordingly for subsequent accounting periods), or
(b) elect not to apply section 357DA for the purposes of determining the relevant IP profits of the trade for the accounting period.
(5) Subsection (4)(b) does not prevent the company making a fresh streaming election in relation to the trade for any subsequent accounting period.
(1) Mandatory streaming condition A is met in relation to a trade of a company for an accounting period if—
(a) any amount brought into account as a credit in calculating the profits of the trade for the accounting period is not fully recognised as revenue for the accounting period, and
(b) the amount, or the aggregate of any such amounts, is substantial.
(2) An amount is a “substantial” amount for the purposes of this section if it is greater than—
(a) £2,000,000, or
(b) 20% of the total gross income of the trade for the accounting period,
whichever is the lower.
(3) But an amount is not a substantial amount for the purposes of this section if it does not exceed £50,000.
(4) The reference in subsection (1)(a) to an amount brought into account as a credit includes a reference to any amount brought into account by virtue of section 147 of TIOPA 2010 (basic transfer-pricing rule).
(5) Mandatory streaming condition B is met in relation to a trade of a company for an accounting period if the total gross income of the trade for the accounting period includes—
(a) relevant IP income, and
(b) a substantial amount of licensing income that is not relevant IP income.
(6) In subsection (5) “licensing income” means income consisting of any licence fee, royalty or other payment which the company has received under an agreement granting another person any right in respect of any intellectual property held by the company.
“Intellectual property” has the meaning given by section 712(3) of CTA 2009.
(7) Mandatory streaming condition C is met in relation to a trade of a company for an accounting period if the total gross income of the trade for the accounting period includes—
(a) income that is not relevant IP income, and
(b) a substantial amount of relevant Head 2 income.
(8) Income is “relevant Head 2 income” for the purposes of subsection (7) if—
(a) it is relevant IP income received under an agreement falling within subsection (6) of section 357BH , and
(b) every qualifying IP right—
(i) in respect of which a right within paragraph (a) of that subsection is granted by the agreement, or
(ii) which is granted in respect of an invention in respect of which a right within paragraph (b) of that subsection is granted by the agreement,
is a right in respect of which the company holds an exclusive licence.
(9) In a case where—
(a) relevant IP income is received under an agreement falling within section 357BH(6) , but
(b) the condition in paragraph (b) of subsection (8) above is not met,
so much of the relevant IP income as on a just and reasonable apportionment is attributable to any qualifying IP right falling within that paragraph is relevant Head 2 income for the purposes of subsection (7).
357E Company with relevant IP losses: set-off amount
Where a company would be entitled to make a deduction under section 357A(2) in calculating the profits of a trade of the company for an accounting period but for the fact that there are relevant IP losses of the trade for the accounting period, there is a “set-off amount” in relation to the trade of the company for the accounting period which is equal to the amount of the relevant IP losses.
357EA Effect of set-off amount on company with more than one trade
(1) This section applies where—
(a) there is a set-off amount in relation to a trade of a company for an accounting period, and
(b) the company carries on any other trade.
(2) The set-off amount is to be reduced (but not to below nil) by any relevant IP profits of that other trade for the accounting period.
(3) Section 357A does not apply in relation to so much of the amount of relevant IP profits of that other trade for the accounting period as is equal to the amount by which the set-off amount is reduced under subsection (2).
(1) This section applies where—
(a) there is a set-off amount in relation to a trade of a company for an accounting period,
(b) the company is a member of a group, and
(c) the set-off amount has not been reduced to nil by the operation of section 357EA(2).
(2) The set-off amount (or so much of it as remains after the operation of section 357EA(2)) is to be reduced (but not to below nil) by any relevant IP profits of a trade of a relevant group member for the relevant accounting period.
(3) For the purposes of this section—
(a) “relevant group member” means another member of the group that has made an election under section 357A(1) and is a qualifying company for the relevant accounting period, and
(b) “relevant accounting period”, in relation to a company, means the accounting period of the company in or at the end of which the accounting period mentioned in subsection (1)(a) ends.
(4) Section 357A does not apply in relation to so much of the amount of relevant IP profits of the trade of the relevant group member for the relevant accounting period as is equal to the amount by which the set-off amount (or so much of it as remains after the operation of section 357EA(2)) is reduced under subsection (2).
(5) Where there is more than one relevant group member, the relevant group members may jointly determine the order in which subsection (2) is to apply to them.
(6) If no determination is made under subsection (5), subsection (2) is to apply first to the trade that has the greatest amount of relevant IP profits of any trade of any of the relevant group members for a relevant accounting period, then to the trade that has the second greatest amount of relevant IP profits of any of those trades for such a period, and so on.
(1) This section applies where—
(a) there is a set-off amount in relation to a trade of a company for an accounting period, and
(b) the set-off amount has not been reduced to nil by the operation of section 357EA(2) or 357EB(2).
(2) The set-off amount (or so much of it as remains after the operation of section 357EA(2) or 357EB(2)) is to be reduced (but not to below nil) by the amount of any relevant IP profits of the trade of the company for the current accounting period.
The “current accounting period” is the accounting period immediately following the accounting period mentioned in subsection (1)(a).
(3) Section 357A does not apply in relation to so much of the amount of relevant IP profits of the trade of the company for the current accounting period as is equal to the amount by which the set-off amount (or so much of it as remains after the operation of section 357EA(2) or 357EB(2)) is reduced under subsection (2).
(4) If any portion of the set-off amount remains after the operation of subsection (2), that portion (“the remaining portion”) is to be treated as the set-off amount in relation to the trade of the company for the current accounting period (and the provisions of this Chapter apply accordingly).
(5) If there are relevant IP losses of the trade of the company for the current accounting period, the set-off amount in relation to the trade of the company for that accounting period is the aggregate of the remaining portion and an amount equal to the amount of those relevant IP losses (and the provisions of this Chapter apply accordingly).
(1) This section applies where—
(a) there is a set-off amount in relation to a trade of a company for an accounting period, and
(b) at any time in the accounting period immediately following that accounting period, the company meets any of the conditions in subsection (2).
(2) The conditions are—
(a) that the company ceases to carry on the trade,
(b) that the company ceases to be within the charge to corporation tax in respect of the trade, or
(c) that any election made by the company under section 357A(1) ceases to have effect.
(3) Sections 357EA to 357EC continue to have effect in relation to the set-off amount subject to the following provisions of this section.
(4) Section 357EB has effect as if—
(a) the reference in subsection (1)(b) to the company being a member of a group were a reference to the company having been a member of the group at the time referred to in subsection (1)(b) of this section,
(b) for subsection (2) there were substituted—
(2) The set-off amount (or so much of it as remains after the operation of section 357EA(2)) is to become, or be added to, the set-off amount in relation to a trade of a relevant group member for the relevant accounting period.
,
(c) subsection (4) were omitted,
(d) for the words after “determine” in subsection (5) there were substituted “ the relevant group member to which subsection (2) is to apply ”, and
(e) for subsection (6) there were substituted—
(6) If no determination is made under subsection (5), subsection (2) is to apply to the trade that has the greatest amount of relevant IP profits of any trade of any of the relevant group members for a relevant accounting period.
(7) If there is no relevant group member with any relevant IP profits of a trade for the relevant accounting period, subsection (2) is to apply to the trade that has the greatest set-off amount in relation to any trade of any of the relevant group members for a relevant accounting period.
(5) Sections 357EA to 357EC cease to have effect in relation to the set-off amount in relation to the trade of the company for an accounting period if—
(a) the company is not carrying on any other trade in that accounting period, and
(b) in the case of a company that was a member of a group at the time referred to in subsection (1)(b) of this section, none of the members of the group is a relevant group member (within the meaning of section 357EB).
(6) In such a case, the set-off amount (so far as remaining after the operation of those sections) is to be reduced to nil.
(1) This section applies where—
(a) there is a set-off amount in relation to a trade of a company for an accounting period,
(b) the company is a member of a group,
(c) the company ceases to carry on the trade, and
(d) another company (“the transferee”) that is a member of the group begins to carry on that trade.
(2) For the purposes of this Chapter an amount equal to the set-off amount is to become, or be added to, the set-off amount in relation to the trade of the transferee for the accounting period in which the transferee begins to carry on the trade.
357EF Payments between group members in consequence of section 357EB
(1) This section applies if—
(a) there is a set-off amount in relation to a trade of a company for an accounting period,
(b) subsection (2) of section 357EB has effect in relation to a relevant group member for the relevant accounting period (within the meaning of that section),
(c) the company and the relevant group member have an agreement between them in relation to the relevant IP losses of the company, and
(d) as a result of the agreement the company makes a payment to the relevant group member that does not exceed the reduction in the relevant IP profits of the relevant group member arising under section 357EB(4).
(2) The payment—
(a) is not to be taken into account in determining the profits or losses of either company for corporation tax purposes, and
(b) is not for any purposes of the Corporation Tax Acts to be regarded as a distribution.
(3) In a case where section 357ED applies (company ceasing to carry on trade, etc), the reference in subsection (1)(d) to the reduction in the relevant IP profits of the relevant group member is to be read as a reference to the amount that becomes, or is added to, the set-off amount in relation to a trade of the relevant group member for the relevant accounting period under section 357EB(2).
A licence that confers any right in respect of a qualifying IP right to the exclusion of all other persons is not to be regarded as an exclusive licence if the main purpose, or one of the main purposes, of conferring the right is to secure that the licence is an exclusive licence for the purposes of this Part.
(1) Income arising from the sale of any item that incorporates a qualifying item is not relevant IP income if the main purpose, or one of the main purposes, of incorporating the qualifying item is to secure that income arising from any such sale is relevant IP income.
(2) “Qualifying item” has the same meaning as in section 357BH(2) .
(1) This section applies where—
(a) a company is entitled to make a deduction under section 357A(2) in calculating the profits of a trade of the company for an accounting period,
(b) the company is or has at any time been a party to a scheme, and
(c) the main purpose, or one of the main purposes, of the company or, where the company is a member of a group, any member of the group in being a party to the scheme is (or was) to obtain the chance of securing a relevant tax advantage.
(2) There is a “relevant tax advantage” for the purposes of this section if—
(a) (apart from this section) there would be an increase in the amount of any deduction made under section 357A(2) in calculating the profits of a trade of the company or (as the case may be) any other member of the group for any accounting period, and
(b) the increase would arise from—
(i) the avoidance of the operation of any provision of this Part,
(ii) artificially inflating the amount of relevant IP income brought into account in calculating those profits (see subsection (3)), ...
(iii) a mismatch between relevant IP income and expenditure (see subsection (4)), or
(iv) an R&D fraction (see subsection (4A)) being greater than it would be but for the scheme.
(3) The reference in subsection (2)(b) to artificially inflating the amount of relevant IP income brought into account in calculating the profits mentioned in subsection (2)(a) is a reference to doing any of the following—
(a) bringing into account in calculating those profits an amount of relevant IP income that wholly or substantially corresponds to an increase in the amounts brought into account as debits in calculating those profits;
(b) bringing into account in calculating those profits an additional amount of relevant IP income that wholly or substantially corresponds to a decrease in the amount of income that is not relevant IP income which is brought into account in calculating those profits.
(4) For the purposes of this section there is a mismatch between relevant IP income and expenditure if—
(a) any relevant IP income brought into account in calculating the profits mentioned in subsection (2)(a) is attributable to any qualifying IP right or an exclusive licence in respect of any such right, and
(b) any expenditure incurred in relation to that right is brought into account in calculating the profits of a trade of the company or (as the case may be) any other member of the group for an accounting period for which an election under section 357A(1) did not have effect.
(4A) The reference in subsection (2)(b)(iv) to an R&D fraction is a reference to such a fraction as is mentioned at Step 6 of section 357BF(2).
(5) The amount of the deduction which may be made by the company for the accounting period mentioned in subsection (1)(a) is the amount that would secure that no relevant tax advantage arises (and may be nil).
(6) In this section “scheme” includes any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions.
357G Making of election under section 357A(1) or (11)(b)
(1) An election made by a company under section 357A(1) or (11)(b) is made by giving notice to an officer of Revenue and Customs.
(2) The notice must specify the first accounting period of the company for which the election is to have effect.
(3) The notice must be given on or before the last day on which an amendment of the company's tax return for that accounting period could be made under paragraph 15 of Schedule 18 to FA 1998.
(4) The election has effect in relation to each trade carried on by the company.
(5) Subject to section 357GA, the election has effect for the accounting period specified in the notice and all subsequent accounting periods of the company.
357GA Revocation of election made under section 357A(1)
(1) A company may revoke an election made by it under section 357A(1) by giving notice to an officer of Revenue and Customs.
(2) The notice must specify the first accounting period of the company for which the revocation is to have effect.
(3) The notice must be given on or before the last day on which an amendment of the company's tax return for that accounting period could be made under paragraph 15 of Schedule 18 to FA 1998.
(4) The revocation has effect in relation to the accounting period specified in the notice and all subsequent accounting periods of the company.
(5) An election made under section 357A(1) by a company that has given notice under this section does not have effect in relation to any accounting period of the company that begins before the end of the period of 5 years beginning with the day after the last day of the accounting period specified in the notice.
357GB Application of this Part in relation to partnerships
(1) This section applies if a firm (within the meaning of CTA 2009) carries on a trade and any partner in the firm is a company within the charge to corporation tax.
Such a partner is referred to in this section as a “corporate partner”.
(2) Subject to the following provisions of this section, this Part applies in relation to the firm as it applies in relation to a company.
(3) Any election under this Part—
(a) may be made or revoked not by the firm but instead by any one or more of the corporate partners (whether jointly or otherwise), and
(b) has effect in relation to each corporate partner making or revoking it as if made or revoked by the firm.
(4) Accordingly, any reference in section 357G(3) or 357GA(3) (time limit for making or revoking elections under section 357A) to the company making or revoking the election is to be read as a reference to the corporate partner so doing.
(5) Section 1261 of CTA 2009 (accounting periods of firms) applies for the purposes of this Part as it applies for the purposes of Part 17 of that Act.
(6) Section 357B (meaning of “qualifying company”) has effect as if in subsection (1) the words “in the case of a company that is a member of a group” were omitted.
(7) For the purposes of this Part the firm meets the development condition in relation to a right to which this Part applies if—
(a) the firm has at any time carried out qualifying development in relation to the right, or
(b) there is a relevant corporate partner in the firm who meets the development condition in relation to the right.
(8) A “relevant corporate partner” is a corporate partner who is entitled to a share of at least 40% of the profits or losses of the firm for any accounting period of the firm.
(9) Section 357BD applies for the purposes of subsection (7)(a) of this section as it applies for the purposes of section 357BC.
(10) Section 357BE (active ownership condition) has effect as if the reference in subsection (4) to section 357BC(2) or (3) included a reference to subsection (7)(a) of this section.
(11) Sections 357BK, 357BKA 357CL and 357CM (election for small claims treatment) have effect as if—
(a) any reference to a company having one or more associated companies were a reference to any corporate partner in relation to which an election under section 357BK or 357CL has effect having one or more associated companies, and
(b) any reference to a company having no associated company were a reference to each such corporate partner having no associated company.
(12) Subsection (13) applies where a corporate partner is a party to an arrangement at any time during an accounting period of the firm which produces for the corporate partner a return within section 357BG(1)(c) .
(13) For the accounting period of the firm the corporate partner's share of a profit or loss of a trade carried on by the firm is determined for corporation tax purposes as if no election under section 357A had effect in relation to the trade.
(1) This section applies for the purposes of this Part.
(2) A “cost-sharing arrangement” is an arrangement under which—
(a) each of the parties to the arrangement is required to contribute to the cost of, or undertake activities for the purpose of, creating or developing an item or process,
(b) each of those parties—
(i) is entitled to a share of any income attributable to the item or process, or
(ii) has one or more rights in respect of the item or process, and
(c) the amount of any income received by each of those parties is proportionate to its participation in the arrangement as described in paragraph (a).
(3) “Invention”, in relation to a cost-sharing arrangement, means the item or process that is the subject of the arrangement (or any item or process incorporated within it).
357GCZA Qualifying IP right held by another party to CSA
(1) This section applies if—
(a) a company is a party to a cost-sharing arrangement,
(b) another party to the arrangement (“P”) holds a qualifying IP right granted in respect of the invention, and
(c) the company does not hold an exclusive licence in respect of the right.
(2) But this section does not apply if the arrangement produces for the company a return within section 357BG(1)(c).
(3) The company is to be treated for the purposes of this Part as if it held the right.
(4) The right is to be treated for the purposes of this Part as a new qualifying IP right in relation to the company if—
(a) the company or P (or both) became a party to the arrangement on or after 1 April 2017, or
(b) the right is a new qualifying IP right in relation to P (or would be if P was a company).
(5) Subsection (4) does not apply if—
(a) the company held an exclusive licence in respect of the right immediately before it became a party to the arrangement, and
(b) that licence was granted to the company before the relevant date.
(6) The right is to be treated for the purposes of this Part as an old qualifying IP right in relation to the company if it is not to be treated as a new qualifying IP right by reason of subsection (4).
(7) Subsections (7) and (8) of section 357BP (meaning of “relevant date”) apply for the purposes of subsection (5) of this section as they apply for the purposes of subsection (6) of that section.
357GCZB Exclusive licence held by another party to CSA
(1) This section applies if—
(a) a company is a party to a cost-sharing arrangement,
(b) another party to the arrangement (“P”) holds an exclusive licence in respect of a qualifying IP right granted in respect of the invention, and
(c) the company does not hold the right or another exclusive licence in respect of it.
(2) But this section does not apply if the arrangement produces for the company a return within section 357BG(1)(c).
(3) The company is to be treated for the purposes of this Part as if it held an exclusive licence in respect of the right.
(4) The right is to be treated for the purposes of this Part as a new qualifying IP right in relation to the company if—
(a) the company or P (or both) became a party to the arrangement on or after 1 April 2017, or
(b) the right is a new qualifying IP right in relation to P (or would be if P was a company).
(5) Subsection (4) does not apply if—
(a) the company held the right immediately before it became a party to the arrangement, and
(b) either—
(i) the right had been granted or issued to the company in response to an application filed before 1 July 2016, or
(ii) the right had been assigned to the company before the relevant date.
(6) Subsection (4) also does not apply if—
(a) the company held an exclusive licence in respect of the right immediately before it became a party to the arrangement, and
(b) that licence was granted to the company before the relevant date.
(7) The right is to be treated for the purposes of this Part as an old qualifying IP right in relation to the company if it is not to be treated as a new qualifying IP right by reason of subsection (4).
(8) Subsections (7) and (8) of section 357BP (meaning of “relevant date”) apply for the purposes of subsections (5) and (6) of this section as they apply for the purposes of subsections (5) and (6) of that section.
357GCZC R&D undertaken or contracted out by another party to CSA
(1) Subsection (2) applies if—
(a) a company is a party to a cost-sharing arrangement, and
(b) another party to the arrangement (“P”) undertakes research and development for the purpose of creating or developing the invention.
(2) The research and development is to be treated for the purposes of sections 357BLC and 357BLD as having been contracted out by the company to P.
(3) Subsection (4) applies if—
(a) a company is a party to a cost-sharing arrangement,
(b) another party to the arrangement (“P”) contracts out to another person (“A”) research and development for the purpose of creating or developing the invention, and
(c) the company makes a payment under the arrangement in respect of that research and development (whether to P or to A).
(4) For the purposes of sections 357BLC and 357BLD—
(a) the company is to be treated as having contracted out to P research and development which is the same as that contracted out by P to A, and
(b) the payment mentioned in subsection (3)(c) is to be treated as if it were a payment made to P in respect of the research and development the company is treated as having contracted out to P.
(5) In this section “research and development” has the meaning given by section 1138.
357GCZD Acquisition of qualifying IP rights etc by another party to CSA
(1) Subsection (2) applies if—
(a) a company is a party to a cost-sharing arrangement,
(b) a person (“A”) assigns to another party to the arrangement (“P”) a qualifying IP right,
(c) the qualifying IP right is a right in respect of the invention, and
(d) the company makes under the arrangement a payment in respect of the assignment (whether to A or to P).
(2) The payment is to be treated for the purposes of section 357BLE as if it were a payment to A in respect of the assignment by A to the company of the right.
(3) Subsection (4) applies if—
(a) a company is a party to a cost-sharing arrangement,
(b) a person (“A”) grants or transfers to another party to the arrangement (“P”) an exclusive licence in respect of qualifying IP right,
(c) the qualifying IP right is a right granted in respect of the invention, and
(d) the company makes a payment under the arrangement in respect of the grant or transfer (whether to A or to P).
(4) The payment is to be treated for the purposes of section 357BLE as if it were a payment to A in respect of the grant or transfer by A to the company of the licence.
357GCZE Treatment of expenditure in connection with formation of CSA etc
(1) Where—
(a) a company makes a payment to a person (“P”) in consideration of that person entering into a cost-sharing arrangement with the company, and
(b) P holds a qualifying IP right granted in respect of the invention or holds an exclusive licence in respect of such a right,
a just and reasonable amount of the payment is to be treated for the purposes of section 357BLE as if it was an amount paid in respect of the assignment to the company of the right or (as the case may be) the transfer to the company of the licence.
(2) Where—
(a) a company makes a payment to a party to a cost-sharing arrangement (“P”) in consideration of P agreeing to the company becoming a party to the arrangement (whether in place of P or in addition to P), and
(b) any party to the arrangement holds a qualifying IP right in respect of the invention or holds an exclusive licence in respect of such a right,
a just and reasonable amount of the payment is to be treated for the purposes of section 357BLE as if it was an amount paid in respect of the assignment to the company of the right or (as the case may be) the transfer to the company of the licence.
(3) Where—
(a) a company that is a party to a cost-sharing arrangement makes a payment to another party to the arrangement in consideration of that party agreeing to the company becoming entitled to a greater share of the income attributable to the invention or acquiring additional rights in relation to the invention, and
(b) any party to the arrangement holds a qualifying IP right in respect of the invention or holds an exclusive licence in respect of such a right,
a just and reasonable amount of the payment is to be treated for the purposes of section 357BLE as if it was an amount paid in respect of the assignment to the company of the right or (as the case may be) the transfer to the company of the licence.
357GCZF Treatment of income in connection with formation of CSA etc
(1) Where—
(a) a company receives a payment in consideration of its entering into a cost-sharing arrangement, and
(b) the company holds a qualifying IP right granted in respect of the invention or holds an exclusive licence in respect of such a right,
a just and reasonable amount of the payment is to be treated as relevant IP income of the company.
(2) Where—
(a) a company that is a party to a cost-sharing arrangement receives a payment from a person in consideration of its agreeing to that person becoming a party to the arrangement (whether in place of the company or in addition to it), and
(b) any party to the arrangement holds a qualifying IP right in respect of the invention or holds an exclusive licence in respect of such a right,
a just and reasonable amount of the payment is to be treated as relevant IP income of the company.
(3) Where—
(a) a company that is a party to a cost-sharing arrangement receives a payment from another party to the arrangement in consideration of its agreeing to that party becoming entitled to a greater share of the income attributable to the invention or acquiring additional rights in relation to the invention, and
(b) any party to the arrangement holds a qualifying IP right in respect of the invention or holds an exclusive licence in respect of such a right,
a just and reasonable amount of the payment is to be treated as relevant IP income of the company.
357GCA Application of this Part in relation to transferred trades
(1) Where—
(a) a company (“the transferor”) ceases to carry on a trade which involves the exploitation of a qualifying IP right (“the relevant qualifying IP right”),
(b) the transferor assigns the relevant qualifying IP right, or grants or transfers an exclusive licence in respect of it, to another company (“the transferee”), and
(c) the transferee begins to carry on the trade,
the following provisions apply in determining under this Part the relevant IP profits of the trade carried on by the transferee.
(2) The transferee is to be treated as not being a new entrant if—
(a) an election under section 357A(1) has effect in relation to the transferor on the date of the assignment, grant or transfer mentioned in subsection (1)(b) (“the transfer date”), and
(b) the first accounting period of the transferor for which that election had effect began before 1 July 2016.
(3) The relevant qualifying IP right is to be treated as being an old qualifying IP right in relation to the transferee if by reason of section 357BP it is an old qualifying IP right in relation to the transferor.
(4) Expenditure incurred prior to the transfer date by the transferor which is attributable to relevant research and development undertaken by the transferor is to be treated for the purposes of section 357BLB as if it is expenditure incurred by the transferee which is attributable to relevant research and development undertaken by the transferee.
(5) Expenditure incurred prior to the transfer date by the transferor in making a payment to a person in respect of relevant research and development contracted out by the transferor to that person is to be treated for the purposes of sections 357BLC and 357BLD as if it is expenditure incurred by the transferee in making a payment to that person in respect of relevant research and development contracted out by the transferee to that person.
(6) Expenditure incurred prior to the transfer date by the transferor in making a payment in connection with the relevant qualifying IP right which is within subsection (2), (3) or (4) of section 357BLE is to be treated for the purposes of that section as if it is expenditure incurred by the transferee in making a payment in connection with that right which is within one of those subsections.
(7) Expenditure incurred by the transferee in making a payment to the transferor in respect of the assignment, grant or transfer mentioned in subsection (1)(b) is to be ignored for the purposes of section 357BLE.
(8) In this section—
“trade” includes part of a trade, and
“relevant research and development” means research and development which relates to the relevant qualifying IP right.
(9) For the purposes of this section research and development “relates” to the relevant qualifying IP right if—
(a) it creates, or contributes to the creation of the invention,
(b) it is undertaken for the purpose of developing the invention,
(c) it is undertaken for the purpose of developing ways in which the invention may be used or applied, or
(d) it is undertaken for the purpose of developing any item or process incorporating the invention.
(1) For the purposes of this Part a company (“company A”) is a member of a group at any time if any other company is at that time associated with company A.
(2) The group consists of company A and each company in relation to which the condition in subsection (1) is met.
(3) For the purposes of this section a company (“company B”) is associated with company A at a time (“the relevant time”) if any of the following five conditions is met.
(4) The first condition is that the financial results of company A and company B, for a period that includes the relevant time, meet the consolidation condition.
(5) The second condition is that there is a connection between company A and company B for the accounting period of company A in which the relevant time falls.
(6) The third condition is that, at the relevant time, company A has a major interest in company B or company B has a major interest in company A.
(7) The fourth condition is that—
(a) the financial results of company A and a third company, for a period that includes the relevant time, meet the consolidation condition, and
(b) at the relevant time the third company has a major interest in company B.
(8) The fifth condition is that—
(a) there is a connection between company A and a third company for the accounting period of company A in which the relevant time falls, and
(b) at the relevant time the third company has a major interest in company B.
(9) In this section, the financial results of any two companies for any period meet “the consolidation condition” if—
(a) they are required to be fully comprised in group accounts,
(b) they would be required to be fully comprised in such accounts but for the application of an exemption, or
(c) they are in fact fully comprised in such accounts.
(10) In subsection (9) “group accounts” means accounts prepared under—
(a) section 399 of the Companies Act 2006, or
(b) any corresponding provision of the law of a country or territory outside the United Kingdom.
(11) The following provisions apply for the purposes of this section—
sections 466 to 471 of CTA 2009 (companies connected for accounting period), and
sections 473 and 474 of CTA 2009 (meaning of “major interest”).
(1) In this Part—
“invention”, in relation to a right to which this Part applies, means the item or process in respect of which the right is granted,
“item” includes any substance,
“the OECD Model Tax Convention” means—
the version of the Model Tax Convention on Income and on Capital published in July 2010 by the Organisation for Economic Co-operation and Development (“the OECD”), or
such other document approved and published by the OECD in place of that (or a later) version or in place of that Convention as is designated for the time being by order made by the Treasury,
“the OECD transfer pricing guidelines” has the same meaning as “the transfer pricing guidelines” in section 164 of TIOPA 2010
“ payment ” includes payment in money's worth.
...
(1A) In Chapters 3 and 4 of this Part “qualifying residual profit” of a trade, in relation to any accounting period, is the amount obtained by the application of Steps 1 to 4 in section 357C or (as the case may be) section 357DA in relation to the trade for the accounting period.
(2) Any reference in this Part to calculating the profits of a trade of a company for an accounting period is a reference to calculating those profits for corporation tax purposes (and any reference to the profits or losses of a trade of a company for an accounting period is to be read accordingly).
(1) This Part is about the Northern Ireland rate of corporation tax and the application of that rate to Northern Ireland profits.
(2) Chapter 2 is about how the Northern Ireland rate is determined.
(3) Chapter 3—
(a) applies the Northern Ireland rate to Northern Ireland profits;
(b) makes provision about the operation of certain reliefs for trading losses that are given against profits.
(4) Chapters 4 and 5 define expressions used in this Part in connection with the determination of a company's Northern Ireland profits; see—
Chapter 4 for definitions of “Northern Ireland company”, “qualifying trade”, “SME” and “Northern Ireland employer”;
Chapter 5 for provision about whether a company has a Northern Ireland regional establishment (a “NIRE”).
(5) Chapters 6 and 7 contain rules for determining whether profits or losses of a trade are “Northern Ireland profits” or “Northern Ireland losses”; see—
Chapter 6 for rules applying in the case of a Northern Ireland company that is an SME and is a Northern Ireland employer;
Chapter 7 for rules applying in the case of a Northern Ireland company that—
is an SME that is not a Northern Ireland employer and has made the requisite election, or
is not an SME.
(6) Chapter 8 is about the treatment of intangible fixed assets in relation to Northern Ireland companies.
(7) Chapters 9 to 15 are about the way in which various credits and reliefs work in relation to Northern Ireland companies; see—
Chapter 9 for provision about R&D expenditure credits and relief for expenditure relating to research and development;
Chapter 10 for provision about relief for expenditure relating to the remediation of contaminated or derelict land;
Chapter 11 for provision about film tax relief;
Chapter 12 for provision about television production;
Chapter 13 for provision about video games development;
Chapter 14 for provision about theatrical productions;
Chapter 14A for provision about orchestra tax relief;
Chapter 14B for provision about museums and galleries exhibition tax relief;
Chapter 15 for provision about profits arising from exploitation of patents etc.
(8) Chapter 16 contains rules for determining whether profits or losses of a trade are “Northern Ireland profits” or “Northern Ireland losses” in the case of a company that is a partner in a Northern Ireland firm.
(9) Chapter 17—
(a) defines “excluded trade” and “excluded activity” (profits of which are not Northern Ireland profits), and
(b) contains power to make provision about the meaning of “back-office activities” (profits imputed to which may be Northern Ireland profits).
(1) The Northern Ireland rate for a financial year is—
(a) if a resolution of the Northern Ireland Assembly—
(i) sets a rate under section 357IA for the year, and
(ii) is passed before the beginning of the year,
the rate set by the resolution;
(b) if the Northern Ireland rate for the year is not determined under paragraph (a), but the Northern Ireland rate for one or more earlier financial years was determined under that paragraph, the rate for the most recent of those earlier years;
(c) otherwise, the main rate.
(2) For the purposes of subsection (1)(a)(ii), a resolution passed before the beginning of a financial year is treated as not having been so passed if it is cancelled by a resolution under section 357IA that is itself passed before the beginning of the year.
357IA Power of Northern Ireland Assembly to set Northern Ireland rate
(1) The Northern Ireland Assembly (“the Assembly”) may by resolution set the Northern Ireland rate for one or more financial years specified in the resolution.
(2) The Assembly may by resolution cancel a resolution under subsection (1).
(3) A resolution under this section may not be passed by the Assembly except in pursuance of a recommendation which—
(a) is made by the Minister of Finance, and
(b) is signified to the Assembly by the Minister or on the Minister's behalf.
(4) A resolution under this section may not be passed by the Assembly without cross-community support.
(5) Section 63 of the Northern Ireland Act 1998 (financial acts of the Assembly) does not apply to a resolution under this section.
(6) This section authorises the setting of a nil rate.
(7) In this section “cross-community support” has the meaning given by section 4(5) of the Northern Ireland Act 1998.
(1) Section 357JA contains provision about—
(a) the charge to corporation tax on Northern Ireland profits and mainstream profits, and
(b) the rate at which Northern Ireland profits are charged.
(2) The subsequent provisions of this Chapter contain provision—
(a) about the availability of relief for Northern Ireland losses and mainstream losses, and
(b) restricting the amount of relief given for Northern Ireland losses in certain circumstances.
357JA Profits chargeable to corporation tax and rates
(1) The reference in section 35 of CTA 2009 (charge to tax on trade profits) to the profits of a trade is, where a company carrying on a trade in an accounting period has Northern Ireland profits of the trade or mainstream profits of the trade, a reference to those Northern Ireland profits or mainstream profits.
(2) Northern Ireland profits are charged to corporation tax at the Northern Ireland rate.
Section 3(1) of this Act (corporation tax charged at main rate) has effect subject to this subsection.
(1) The references in section 37 and sections 45A to 45F (relief for trade losses) to a loss are, where a company carrying on a trade in an accounting period has Northern Ireland losses of the trade or mainstream losses of the trade, references to those Northern Ireland losses or mainstream losses.
(2) If a company has a Northern Ireland loss and a mainstream loss in the same accounting period, sections 37 and 45A to 45F have effect in relation to each of those losses separately.
(3) If by reason of this section a company is entitled under section 37(2), 45A(5), 45B(5) or 45F(2) to make a claim in relation to a Northern Ireland loss (or an amount of such a loss) and a claim in relation to a mainstream loss (or an amount of such a loss), the company may make—
(a) one of those claims only, or
(b) both of those claims in either order.
(4) Where—
(a) relief is given under section 37, 45A, 45B or 45F for a Northern Ireland loss (or an amount of such a loss), and
(b) the profits against which the relief is given includes some profits of the trade that are Northern Ireland profits and some that are not,
the relief is given first, so far as possible, against the Northern Ireland profits.
(5) Where—
(a) relief is given under section 37, 45, 45A, 45B or 45F for a loss (or an amount of a loss) that is not a Northern Ireland loss, and
(b) the profits against which the relief is given include some profits of the trade that are Northern Ireland profits and some that are not,
the relief is given first, so far as possible, against the profits that are not Northern Ireland profits.
(1) Subsection (2) applies where—
(a) relief is given under section 37 for a Northern Ireland loss (“the loss”),
(b) the profits against which the relief is given include profits that are not Northern Ireland profits, and
(c) at any time during the accounting period for which the relief is given (“the profit period”) the Northern Ireland rate is lower than the main rate.
(2) The reference in section 37(4) to “the amount of the loss” is to the restricted deduction for the loss, as determined under section 357JJ (restricted deduction where Northern Ireland rate lower than main rate).
(3) Subsection (4) applies where—
(a) relief is given under section 45A, 45B or 45F for an amount of a Northern Ireland loss (“the loss”),
(b) the profits against which the relief is given include profits that are not Northern Ireland profits, and
(c) at any time during the accounting period for which the relief is given (“the profit period”), the Northern Ireland rate is lower than the main rate.
(4) The reference in section 45A(6), 45B(4) or (as the case may be) 45F(5) to “the unrelieved amount” is to so much of that amount as is equal to the restricted deduction for the loss, as determined under section 357JJ.