PART 8A Profits arising from the exploitation of patents etc

CHAPTER 2B Relevant IP profits: cases mentioned in section 357A(7): income from new IP

357BQ The modifications
(1) The modifications of section 357BF referred to in section 357BO(1) are as follows.
(2) Omit subsection (1).
(3) In subsection (2)—
(a) in Step 2—
(i) before paragraph (a) insert—

“(aa) a sub-stream consisting of income properly attributable to old qualifying IP rights (“an old IP rights sub-stream”),”

,
(ii) in paragraph (a) before “qualifying IP right” insert “ new ”,
(iii) in the words after paragraph (c) for “and (7)” substitute “ to (7E) ”,
(b) in Step 6, for “relevant IP income sub-stream” substitute “ individual IP right sub-stream, each product sub-stream and each process sub-stream ”, and
(c) for Step 7 substitute—

“Step 7 Add together—
(a) the amount of any old IP rights sub-stream (following Steps 4 and 5), and
(b) the amount of each of the individual IP right sub-streams, each of the product sub-streams and each of the process sub-streams (following Step 6).”

(4) In subsection (7) for paragraph (a) substitute—

“(a) it would not be reasonably practicable to apportion the income between—
(i) individual IP rights sub-streams, or
(ii) individual IP rights sub-streams and an old IP rights sub-stream, or”

.
(5) After subsection (7) insert—

“(7A) Subsections (7B) to (7E) apply where—
(a) income which is properly attributable to an IP item or IP process may in accordance with subsection (7) be allocated at Step 2 of subsection (2) to a product sub-stream or process sub-stream, and
(b) the IP item or IP process incorporates—
(i) at least one item or process in respect of which an old qualifying IP right held by the company has been granted, and
(ii) at least one item or process in respect of which a new qualifying IP right held by the company has been granted.
(7B) If—
(a) the value of the IP item or IP process is wholly or mainly attributable to the incorporation in it of the items or processes referred to in subsection (7A)(b)(i), or
(b) the old IP percentage for the IP item or IP process is 80% or more,
the income properly attributable to the IP item or IP process may be treated as if it were properly attributable to old qualifying IP rights only; and, accordingly, the income may be allocated at Step 2 of subsection (2) to an old qualifying IP rights sub-stream (rather than to a product sub-stream or process sub-stream).
(7C) If the old IP percentage for the IP item or IP process is less than 80% but not less than 20%, that percentage of the income which is properly attributable to the IP item or IP process may be treated as if it were properly attributable to old qualifying IP rights only; and, accordingly, that percentage of the income may be allocated at Step 2 of subsection (2) to an old IP rights sub-stream (and the remainder is to be allocated to a product sub-stream or process sub-stream).
(7D) Where by reason of subsection (7C) only part of the income properly attributable to the IP item or IP process is allocated to a product sub-stream or process sub-stream, the IP item or IP process is to be treated, in determining the R&D fraction for the sub-stream, as if it did not incorporate the items or processes referred to in subsection (7A)(b)(i).
(7E) For the purposes of subsection (7B) and (7C), the “old IP percentage” for an IP item or IP process is the percentage found by the following calculation—
where—
O is the number of items or processes incorporated in the IP item or IP process in respect of which an old qualifying IP right held by the company has been granted, and
T is the number of items or processes incorporated in the IP item or IP process in respect of which an old or a new qualifying IP right held by the company has been granted.”

Pt. 8A Chs. 2A, 2B inserted (with effect in accordance with s. 64(7) of the amending Act) by Finance Act 2016 (c. 24), s. 64(3)
Pt. 8A inserted (with effect in accordance with Sch. 2 paras. 7, 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 2 para. 1(1)