Taxation (International and Other Provisions) Act 2010 section 371DJ

Exclusion: trading profits (IP condition)

Section 371DJ sets out the intellectual property (IP) condition that must be considered when determining whether a controlled foreign company's trading profits qualify for the exclusion from the CFC charge.

• The IP condition is automatically met (i.e. the exclusion is available) unless intellectual property generating profits in the CFC was transferred from, or derived from IP held by, UK-connected related parties within the current accounting period or the previous six years
• If such transfers or derivations have taken place, the condition fails only where the value of IP retained by the related parties has been significantly reduced as a result, and — where only part of the CFC's exploited IP came from the UK — the transferred portion is either a significant part of the total exploited IP or has significantly increased the CFC's profits
• For non-UK resident related parties, only IP that was held for the purposes of a UK permanent establishment is relevant — transfers of IP held outside the UK by such persons are disregarded
• The relevant period for assessing whether IP transfers have occurred covers the CFC's current accounting period plus the six years immediately preceding it