What income is excluded from relevant IP income under section 357BHB of the Corporation Tax Act 2010?

Section 357BHB excludes two categories from relevant IP income under the Patent Box regime: income arising from oil extraction activities or oil rights as defined in Part 8 of the Corporation Tax Act 2010, and income properly attributable on a just and reasonable apportionment to a non-exclusive licence held by the company for an item or process.

Why is oil extraction income excluded from the United Kingdom Patent Box regime?

Income from oil extraction activities or oil rights, as defined in sections 272 and 273 of the Corporation Tax Act 2010, is excluded to prevent companies engaged in oil-related activities from routing that income through the Patent Box to benefit from the reduced corporation tax rate, even where intellectual property is involved in those activities.

How does section 357BHB treat a licence that grants both exclusive and non-exclusive rights?

Where an exclusive licence for a qualifying IP right also confers non-exclusive rights, section 357BHB requires the single licence to be treated as two separate licences. One is an exclusive licence that may generate relevant IP income for the Patent Box. The other is a non-exclusive licence whose attributable income is excluded from Patent Box relief.

How is income apportioned between exclusive and non-exclusive licence elements under section 357BHB?

The company must make a just and reasonable apportionment to determine how much total income from the licence relates to each element. Only the portion attributed to the exclusive licence element can qualify as relevant IP income eligible for the Patent Box reduced rate of corporation tax. The non-exclusive element remains excluded income.

Corporation Tax Act 2010 section 357BHB

Excluded income

Section 357BHB identifies two categories of income that are excluded from being treated as relevant IP income for the purposes of the Patent Box regime.

Income from oil extraction activities or oil rights is excluded from relevant IP income
Income attributable to non-exclusive licences — licences for an item or process that are not exclusive licences for a qualifying IP right — is also excluded
Where a company holds an exclusive licence that also confers non-exclusive rights, the licence is treated as two separate licences for Patent Box purposes
Only the exclusive licence element can potentially qualify as relevant IP income; the non-exclusive element is excluded

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