The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
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:
the accounting period begins before 1 July 2021
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
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, s357C
The following guidance notes set out details of the alternative calculations of relevant IP profits:
Calculating relevant IP profits ― existing claimants with new IP rights
Calculating relevant IP profits ― from 1 July 2016
From 1 July 2021, the rules at CTA 2010, ss 357BF–357BNC (Pt 8A, Ch 2A) (those for ‘new entrants’) apply to all companies. Where an accounting period straddles these respective dates, the period is split into two national periods, with profits and losses being apportioned on a just and reasonable basis.
The legislation sets out two alternative methods for calculating the amount of profit which qualifies for the patent box, known as the relevant IP profit:
formulaic method (sometimes called the profit apportionment basis)
This guidance note deals with the profit apportionment method. See the Calculation of patent box profits ― streaming method guidance note for details of that method.
The legislation essentially sets out a three-stage process for calculating the relevant IP profit, broken down into six-key detailed steps. A seventh step applies in the case of patents which are pending formal grant.
The three-stages which summarise the detailed steps are:
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