Patent box ― marketing assets return

By Tolley
Corporation_tax_img2

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Patent box ― marketing assets return
  • Changes to the patent box regime
  • Interaction with calculation of qualifying IP profits
  • Calculating the marketing assets return figure
  • Notional marketing royalty
  • Actual marketing royalty

Changes to the patent box regime

Major changes to the patent box regime were made by FA 2016 to bring it into line with the outcome of the OECD’s recommendations on tackling harmful tax practices and preferential IP regimes. See the Overview of the Patent Box guidance note for details. There are now separate regimes which apply to the calculation of qualifying IP profits for existing entrants to the patent box (the first patent box election is made for an accounting period beginning before 1 July 2016) and for new entrants (broadly, those making their first patent box election for accounting periods beginning on or after 1 July 2016). The rules for calculating the marketing assets return figure which extracts brand value from the calculation of qualifying IP profits under both regimes are very similar. However the rules have been modified to reflect the application to the separate ‘sub-streams’ applicable to new entrants. This is explained in further detail below and legislative references are provided for both existing claimants and new entrants.

Interaction with calculation of qualifying IP profits
Existing entrants

There are several steps which must be carried out in order to calculate the amount of qualifying IP profits to which the reduced patent box rate of corporation tax can be applied. The steps are set out in the Calculating relevant IP profits ― existing claimants with no new IP rights guidance note, which should be read in conjunction with this note.

CTA 2010, s 357C(1)

Step 6 requires an adjustment to be made which eliminates the profits generated from the company’s brand and marketing assets, so that only profits generated from the exploitation of qualifying IP benefit from patent box treatment. This adjustment is known as the ‘marketing assets return figure’, which must be deducted from the qualifying residual profit (QRP).

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