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

The IP condition

Section 371KJ sets out the intellectual property (IP) condition that must be satisfied for a controlled foreign company (CFC) to qualify for the excluded territories exemption.

• The IP condition is automatically met unless the CFC earns profits from intellectual property that was transferred from, or derived from, IP held by UK-connected persons within the past six years, and those transfers significantly reduced the value of those persons' IP holdings.
• Where only part of the CFC's exploited IP came from UK-connected persons, an additional significance condition must be met — either the transferred IP is a significant part of the total exploited IP, or it has significantly increased the CFC's profits.
• For non-UK resident persons related to the CFC, the condition only applies where the IP in question was held for the purposes of a UK permanent establishment before the transfer.
• The relevant look-back period covers the current accounting period plus the six years immediately preceding it.