Section 357BHA — Corporation Tax Act 2010: Notional royalty

Notional royalty 357BHA 1 This section applies where—

a a company holds a qualifying IP right or an exclusive licence in respect of a qualifying IP right, b the qualifying IP right falls within paragraph (a), (b) or (c) of section 357BB(1),

and c the income of a trade of the company for an accounting period includes income (“IP-derived income”) which—

i arises from things done by the company that involve the exploitation by the company of the qualifying IP right, and ii is not relevant IP income, finance income or excluded income.

2 The company may elect that the appropriate percentage of the IP-derived income is to be treated for the purposes of this Part as if it were relevant IP income.

3 The “appropriate percentage” is the proportion of the IP-derived income which the company would pay another person (“P”) for the right to exploit the qualifying IP right in the accounting period concerned if the company were not otherwise able to exploit it.

4 For the purposes of determining the appropriate percentage under this section, assume that—

a the company and P are dealing at arm's length, b the company, or the company and persons authorised by it, will have the right to exploit the qualifying IP right to the exclusion of any other person (including P),

c the company will have the same rights in relation to the qualifying IP right as it actually has, d the right to exploit the qualifying IP right is conferred on the relevant day, e the appropriate percentage is determined at the beginning of the accounting period concerned, f the appropriate percentage will apply for each succeeding accounting period for which the company will have the right to exploit the qualifying IP right, and g no income other than IP-derived income will arise from anything done by the company that involves the exploitation by the company of the qualifying IP right.

5 In subsection (4)(d) “ the relevant day ” means—

a the first day of the accounting period concerned, or b if later, the day on which the company first began to hold the qualifying IP right or licence.

6 In determining the appropriate percentage, the company must act in accordance with—

a Article 9 of the OECD Model Tax Convention, and b the OECD transfer pricing guidelines.

7 In this section “ excluded income ” means any income falling within either of the Heads in section 357BHB.