Commentary

A4.436 Payments of an income nature

Administration and compliance

A4.436 Payments of an income nature

A4.436 Payments of an income nature

A royalty or other sum in respect of the user of a patent is payable under deduction of tax1. Case law has established that this does not include payments of a capital nature.

As regards payment of patent royalties without deduction of tax to an associated company in an EU member state, see A4.450–A4.455.

The distinction between capital and income payments in respect of patents, as elsewhere, is often hard to draw. The question was dealt with in general terms by Sir Wilfrid Greene MR, in IRC v British Salmson Aero Engines Ltd2 as follows:

'… there have been … many cases where this matter of capital or income has been debated. There have been many cases which fall upon the borderline: indeed, in many cases it is almost true to say that the spin of a coin would decide the matter almost as satisfactorily as an attempt to find reasons…

I am unable to read this legislation as deciding that class of problem in the matter of patents once and for all by declaring in some way that every payment in respect of the user of a patent must of necessity be of an income nature. … It seems to me that in the case of patents, as in the

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