Corporation Tax Act 2010 section 357BIA

Certain amounts not to be deducted from sub-streams at Step 4 of section 357BF

Section 357BIA prevents certain income-related payments from being deducted from relevant IP income sub-streams where doing so would distort the R&D fraction used in calculating Patent Box profits.

• Where a company acquires a qualifying IP right (or exclusive licence) and makes income-related payments to the assignor, special rules apply to how those payments are treated in the Patent Box profit calculation.
• A payment is "income-related" if the obligation to pay, or the amount payable, is linked to the income the company earns from the IP right or licence.
• If an income-related payment is allocated to a relevant IP income sub-stream at Step 3 of the profit calculation, it must not be deducted from that sub-stream at Step 4 unless the payment would have no effect on the R&D fraction for that sub-stream.
• This rule ensures that arrangements involving income-dependent payments for IP rights do not artificially inflate the Patent Box tax benefit by manipulating the R&D fraction.