Corporation Tax

Calculating relevant IP profits ― not a new entrant and no new IP rights

Produced by Tolley
  • 22 Dec 2021 16:13

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

  • Calculating relevant IP profits ― not a new entrant and no new IP rights
  • Changes to the patent box regime
  • Three-stage process
  • Step 1 ― total gross income of the trade
  • Exclusion of finance income
  • Step 2 ― relevant IP income
  • Excluded income
  • Notional royalties
  • Step 3 ― adjustments in calculating profits of trade
  • Step 4 ― routine return figure
  • More...

Calculating relevant IP profits ― not a new entrant and no new IP rights

Changes to the patent box regime

FA 2016 introduced major changes to the patent box regime, following recommendations made by the OECD to implement an internationally developed framework for preferential IP regimes to address base erosion and profit shifting (BEPS). The commentary in this guidance note applies to the calculation of relevant IP profits of a company where:

  1. the accounting period begins before 1 July 2021

  2. the company is not a new entrant, ie the company made a patent box election for an accounting period beginning before 1 July 2016, or it has not elected to be treated as a new entrant, and

  3. none of the relevant IP income brought into account in calculating relevant IP income is attributable to ‘new’ qualifying IP, ie IP granted, assigned or licensed to the company on or after 1 July 2016

CTA 2010, s 357C

The Calculating relevant IP profits ― not a new entrant but new IP rights before 1 July 2021 guidance note sets out an alternative calculation of relevant IP profits where new IP is acquired.

From 1 July 2021, the rules at CTA 2010, ss 357BF–357BNC (Pt 8A, Ch 2A) (those for ‘new entrants’) apply to all companies, as set out in the Calculating relevant IP profits ― new entrants and 1 July 2021 onwards guidance note. Where an accounting period straddles these respective dates, the period is split into two national periods, with profits and losses being apportioned

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