Income Tax (Trading and Other Income) Act 2005 section 195

Seller controlled by buyer etc.

Section 195 deals with the sale of know-how between connected parties who are under common control, restricting the tax treatment options that would otherwise be available.

• Where the seller and buyer are under common control, the normal rules for taxing know-how disposals where the trade continues (section 193) do not apply
• The parties cannot elect to treat the know-how payment as a capital payment for goodwill under section 194
• Common control exists where one party controls the other, or a third party controls both — and "body of persons" includes a firm (partnership)
• This is an exception to the general rule that a firm is not treated as a separate entity for tax purposes