Income Tax (Earnings and Pensions) Act 2003 Schedule 5 paragraph 19

Excluded activities: receipt of royalties or licence fees

Paragraph 19 explains when a trade that receives substantial royalties or licence fees can avoid being treated as carrying on an excluded activity, provided those royalties or licence fees derive from intangible assets that the company (or its qualifying subsidiary) created itself.

• A trade is not excluded solely because it receives substantial royalties or licence fees, as long as all or nearly all of those fees are attributable to the exploitation of "relevant intangible assets"
• A relevant intangible asset is one where the whole or greater part (by value) was created by the company itself, or by a company that was its qualifying subsidiary throughout the period of creation
• Where the intangible asset is intellectual property (such as patents, trade marks, copyrights, design rights, performer's rights or plant breeder's rights, including equivalent overseas rights), creation means the right to exploit it vests in the company, alone or jointly with others
• If the company acquired all the shares in another company by issuing its own shares at a time when only subscriber shares existed, references to the company include that acquired company for the purposes of determining who created the asset

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