Income Tax (Trading and Other Income) Act 2005 section 577A

Territorial scope of Part 5 charges: receipts from intellectual property

Section 577A clarifies when royalties or other payments for intellectual property made by non-UK residents are treated as UK-source income because they are connected with a trade conducted through a permanent establishment in the United Kingdom.

• Royalties or other sums paid for intellectual property by a non-UK resident are treated as UK-source income if the payment is connected with a trade carried on through a UK permanent establishment
• Where the non-UK resident's trade is only partly carried on through a UK permanent establishment, the payment is attributed to the UK establishment to a just and reasonable extent, based on all the circumstances
• An anti-avoidance rule requires any arrangements whose main purpose (or one of whose main purposes) is to circumvent this UK-source income rule to be disregarded
• Key definitions cover "arrangements" (broadly drawn to include any agreement, scheme or transaction, whether or not legally enforceable), "intellectual property" (as defined for the receipts from intellectual property charge), and "permanent establishment" (interpreted in line with corporation tax rules, extended to non-corporate persons)