What does section 357EB of the Corporation Tax Act 2010 do?

Section 357EB provides a mechanism for a company's remaining Patent Box set-off amount, not already absorbed by its own other trades under section 357EA, to be allocated against the relevant IP profits of other group companies that have elected into the Patent Box regime for the corresponding accounting period.

How does the group allocation of the Patent Box set-off amount affect a group member's IP profits?

The portion of a group member's relevant IP profits that matches the reduction in the set-off amount loses its entitlement to the lower Patent Box tax rate. Those IP profits are instead taxed at the normal corporation tax rate, effectively exchanging the Patent Box benefit for absorption of the set-off amount.

What is the default order of allocation when multiple group members qualify under section 357EB?

If the qualifying group members do not jointly agree on an allocation order, the legislation applies a default rule: the set-off is applied first to the trade with the greatest relevant IP profits, then to the next greatest, continuing until the set-off amount is fully used or no further relevant IP profits remain.

Who qualifies as a relevant group member for the purposes of section 357EB?

A relevant group member is another company in the same group that has elected into the Patent Box regime and qualifies for the corresponding accounting period. The relevant accounting period for the group member is the one ending within, or at the same time as, the accounting period of the company holding the set-off amount.

Corporation Tax Act 2010 section 357EB

Allocation of set-off amount within a group

Section 357EB deals with how a company's remaining Patent Box set-off amount can be allocated against the qualifying IP profits of other group companies that have also elected into the Patent Box regime.

Where a company has a set-off amount that has not been fully used against its own other trades, the remainder can be set against the relevant IP profits of other group members that have elected into the Patent Box
The set-off amount is reduced by the IP profits of the relevant group member, and in return that group member's IP profits eligible for the lower Patent Box tax rate are reduced by the same amount
Where there is more than one qualifying group member, the companies may jointly decide the order in which the set-off is allocated among them
If no joint decision is made, the set-off is applied first to the group member with the largest relevant IP profits, then the next largest, and so on until the set-off amount is fully used or no further IP profits remain

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