Corporation Tax Act 2010 section 357BKA

Notional marketing royalty

Section 357BKA sets out how to calculate the notional marketing royalty that is deducted from a relevant IP income sub-stream to strip out the return attributable to marketing assets rather than patented innovation.

• The notional marketing royalty for each IP income sub-stream is the "appropriate percentage" of the income allocated to that sub-stream — essentially the arm's length royalty the company would pay an independent party for the right to use the relevant marketing assets.
• Determination of the appropriate percentage must follow OECD transfer pricing principles (Article 9 of the OECD Model Tax Convention and the OECD Transfer Pricing Guidelines), assuming exclusive rights, arm's length dealing, and that only the sub-stream income arises from exploiting those assets.
• Marketing assets include registered trade marks, equivalent rights recognised overseas, geographical indications of origin, and customer or prospect data held for marketing purposes — whether or not the asset is capable of being transferred or assigned.
• The notional royalty is assumed to be granted on the later of the first day of the accounting period or the date the company first acquired the marketing asset or the right to exploit it, and the same percentage applies for all subsequent periods in which the company retains that right.