Finance Act 2006

Amendment of section 141 (distributions out of income from patent royalties) of Principal Act.

55.— (1) Section 141 of the Principal Act is amended—

(a) in subsection (5)(c) by inserting the following after “1996”:

“and the specified income is income from a qualifying patent in respect of an invention which was patented for bona fide commercial reasons and not primarily for the purpose of avoiding liability to taxation”,

and

(b) by inserting the following after subsection (5):

“(5A) (a) In this subsection—

‘arrangement’ means any arrangement, agreement, understanding, promise or undertaking whether express or implied;

‘relevant income’ means income to which paragraph (b) of the definition of ‘income from a qualifying patent’ in section 234 applies;

‘the amount of aggregate expenditure on research and development incurred by a company in relation to an accounting period’, ‘the amount of the expenditure on research and development activities’, and ‘research and development activities’ have the same meanings as they have in subsection (5)(a);

‘payment in respect of the use of intellectual property’ means any payment made, directly or indirectly, in respect of—

(i) any franchise, trade mark, registered design, design right, invention or domain name,

(ii) any copyright or related right within the meaning of the Copyright and Related Rights Act 2000 ,

(iii) any licence or other right in respect of anything within paragraph (i) or (ii),

(iv) any rights granted under the law of any country, territory, state or area, other than the State, or under any international treaty, convention or agreement to which the State is a party, that correspond to or are similar to those within paragraph (i), (ii) or (iii),

(v) goodwill to the extent that it is directly attributable to anything within paragraph (i), (ii), (iii) or (iv).

(b) Paragraph (b) of subsection (5) shall apply for the purposes of this subsection as it applies for the purposes of that subsection.

(c) This subsection shall apply to a company for an accounting period if under any arrangement—

(i) (I) a person could become liable to make to the company any payment in respect of the use of intellectual property by virtue of the fact that any payment which is relevant income made by the person to the company could have been insufficient for the purposes of the arrangement, or

(II) a person becomes liable to make to the company any payment in respect of the use of intellectual property by virtue of the fact that any payment which is relevant income made by the person to the company was insufficient for the purposes of the arrangement,

or

(ii) (I) the company could become liable to make to any person any payment in respect of the use of intellectual property by the person by virtue of the fact that any payment which is relevant income made by the person to the company could have been excessive for the purposes of the arrangement, or

(II) the company becomes liable to make to any person any payment in respect of the use of intellectual property by the person by virtue of the fact that any payment which is relevant income made by the person to the company was excessive for the purposes of the arrangement.

(d) Where this subsection applies to a company for an accounting period and the company makes for that accounting period one or more distributions out of relevant income, then so much of the amount of that distribution, or the aggregate of such distributions, as does not exceed the amount of aggregate expenditure on research and development incurred by the company in relation to the accounting period shall be treated as a distribution made out of disregarded income; but a distribution shall not be treated as a distribution made out of disregarded income unless the relevant income is income from a qualifying patent in respect of an invention that was patented for bona fide commercial reasons and not primarily for the purpose of avoiding liability to tax.”.

(2) This section applies and has effect as respects any distributions made on or after 2 February 2006.