Patent box ― qualifying companies

Produced by Tolley

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

  • Patent box ― qualifying companies
  • Meaning of qualifying company for the patent box
  • The development condition
  • Qualifying development
  • The active ownership condition
  • Definition of a group for patent box purposes
  • Application of the patent box to partnerships

Patent box ― qualifying companies

Meaning of qualifying company for the patent box

Only those companies which meet the qualifying company conditions in CTA 2010, s 357B are able to benefit from the reduced rate of corporation tax which can be applied to patent box profits. See the Patent box tax regime ― overview guidance note for more background information on the regime. Standalone companies must satisfy conditions A or B below, and companies which are members of a group must also satisfy condition C, as follows:

  1. Condition A is that at any time during the accounting period, the company holds qualifying intellectual property (IP) rights, or holds an exclusive licence in respect of any such rights

  2. Condition B is that:

    1. the company has held a qualifying IP right or exclusive licence (as defined in CTA 2010, s 357BA) in respect of a right

    2. the company has received income in respect of an event which occurred in relation to the right or licence when:

      1. the company was a qualifying company, and

      2. the company had made a patent box election

    3. the income falls to be taxed in the accounting period

  3. Condition C is that the company meets the ‘active ownership’ condition for the accounting period

For the purposes of condition B, a right is a qualifying IP right if it is listed in CTA 2010, s 357BB (see also the Patent box ― qualifying intellectual property guidance note) and the company meets the ‘development condition’ in relation to the right as set out in CTA 2010, s 357BC.

Some of these terms are explained in more detail below.

The development condition

The company must carry out qualifying development activities in order to obtain the benefits offered by the patent box regime. Simple ownership of patents (or other qualifying IP) will not be sufficient.

CTA 2010, s 357BC sets out four conditions, A to D (see below), one of which must be satisfied in order for the company to meet the overall

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