Corporation Tax Act 2010 section 357EF

Payments between group members in consequence of section 357EB

Section 357EF sets out the tax treatment of payments made between group companies to compensate for the transfer of relevant intellectual property losses under the Patent Box regime.

• Where a company transfers its relevant IP losses to reduce a group member's IP profits, the two companies may agree that the loss-making company will make a compensating payment to the group member whose profits have been reduced.
• Provided the payment does not exceed the amount by which the group member's relevant IP profits were reduced, the payment is completely ignored for corporation tax purposes — it is not treated as income or a deduction for either company.
• The payment is also not treated as a distribution, so it does not give rise to any dividend-related tax consequences.
• Where the loss-making company has ceased to trade and its losses are instead added to the group member's own set-off amount, the cap on the payment is measured by reference to the amount added to that set-off amount rather than by reference to a reduction in IP profits.