756 Effect of lapse of patent rights

Summary

Where a person has incurred expenditure on the purchase of patent rights, the grant of the writing-down allowances provided for in section 755 would, if continued for the whole of the writing-down period, completely write off that expenditure. It may happen, however, that before the end of that period is reached the patent is allowed to lapse, or the person enjoying the annual allowances in respect of the expenditure in question may sell part or the whole of the rights acquired by incurring that expenditure. This section provides for certain adjustments in such circumstances. However, this section shall not apply to patent rights for which an allowance has been made to a company under section 284 as applied by section 291A.

Details

Stop on further allowances

(1) If, before the end of the writing-down period —

• patent rights cease to belong to the person who incurred the expenditure,
• the rights are sold, or
• part of the rights are sold and the proceeds are not less than the amount of expenditure remaining unallowed,

the person is to receive no further writing-down allowance in respect of the expenditure.

Balancing allowances

(2) Where, before the end of the writing-down period, the patent rights cease to belong to the person who incurred the capital expenditure on the purchase of the rights, or the person sells those rights and the net proceeds of the sale are less than the amount of the capital expenditure remaining unallowed (see subsection (5)), a balancing allowance is given equal to the amount of the capital expenditure remaining unallowed.

Balancing charges

(3) Where a person who incurred capital expenditure on the purchase of the rights sells those rights and the net proceeds of the sale exceed the amount of the capital expenditure remaining unallowed (see subsection (5)), if any, a balancing charge is made equal to the amount of the excess or, where the capital expenditure remaining unallowed is nil, the net proceeds of the sale.

Part-sale

(4) Where there is a sale of part only of the patent rights but a balancing charge does not apply because the proceeds of sale are less than the amount of the capital expenditure remaining unallowed, no balancing allowance is made. In addition, the title of the seller (who retains part of the rights) to future writing-down allowances over the remaining writing-down period are to be computed by reference to the amount of the capital expenditure remaining unallowed, less the proceeds of the sale in question.

Expenditure remaining unallowed

(5) The expression “expenditure remaining unallowed” is defined as the original expenditure, less the writing-down allowances already made and less also the net proceeds of any previous sale of a part of the patent rights on the acquisition of which the original expenditure was incurred.

Miscellaneous

(6) No balancing allowance is to be granted except where a writing-down allowance has been or could have been made. This ensures that balancing allowances are granted only to the persons mentioned in section 755, namely, traders and other persons liable to Irish tax on income derived from the exploitation of the patent rights in question. Also, there is the usual stipulation restricting the amount on which a balancing charge may be made to the aggregate of the allowances already enjoyed in respect of the expenditure (in so far as those have not been withdrawn by any previous balancing charge). It should be noted, however, that the imposition of a balancing charge may not end the matter. Where rights are sold for a sum which yields the seller an overall capital profit (that is, a sum in excess of the price paid), there will, in addition to any balancing charge, be a liability under section 757 on the excess.

Non-application of section where relief claimed under intangible asset scheme

(7) This section shall not apply to patent rights for which an allowance has been made to a company under section 284 as applied by section 291A.

Relevant Date: Finance Act 2021