769G Interpretation and general

This section gives the meaning of certain terms and provides rules for the construction of certain references used in this Chapter.

(1) The following are the main definitions:

‘acquisition costs’ as the amount incurred on buying intellectual property or where the transaction is between related parties, it is the market value of that intellectual property;

‘group’ as a company and all of its 51% subsidiaries;

‘group outsourcing costs’ as amounts paid to a group member to carry out R&D activities, amounts incurred by the company in carrying on R&D outside of the EEA and amounts incurred by the company in carrying on R&D in the EEA if tax relief was available for that expenditure in that EEA country;

‘intellectual property’, being the assets to which this Chapter can apply, as–

1. a computer program, or a portion of a computer program that represents a derivative work or an adaptation of the original work, or
2. an invention protected by —
   1. a qualifying patent,
   2. certain supplementary protection certificates;

‘marketing-related intellectual property’ as including trademarks, brands, image rights and other intellectual property used to market goods or services;

‘overall expenditure on the qualifying asset’ is the total of qualifying expenditure, acquisition costs and the group outsourcing costs relating to that qualifying asset, incurred in any accounting period;

‘overall income from the qualifying asset’ is any royalty, any embedded royalty, any license fee for the use of the qualifying asset or any amount of insurance or compensation relating to that asset, where those amounts are taxable as profits of the trade;

‘qualifying asset’ is intellectual property, other than marketing related intellectual property, which is the result of research and development activities;

‘qualifying patent’ is either-

1. a patent granted following substantive examination for novelty and inventive step, or
2. a full term patent, where a search report has been carried out and either:
   1. the patent was granted prior to 1 January 2016, or
   2. the patent was granted between 1 January 2016 and 1 January 2017 and a patent agent certifies that, in his or her opinion, such a patent would have been granted had a substantive examination been carried out;

‘relevant company’ means a company which carries on a specified trade, either by itself or in partnership, and is within the charge to tax in the State;

‘research and development activities’ has the same meaning as in section 766;

‘up-lift expenditure’ for each qualifying asset is the lower of–

1. 30 per cent of the qualifying expenditure, or
2. the aggregate of acquisition costs and group outsourcing costs.

(2) This subsection defines ‘qualifying expenditure’.

(a) This paragraph provides the starting point for determining what expenditure can be included as qualifying expenditure, which is then subject to some specific exclusions set out in paragraph (b). Based on the wording of section 766(1)(a), only expenditure incurred by a company, in any accounting period, wholly and exclusively in the carrying on by it of research and development activities in the EEA where those activities lead to the development, improvement or creation of the qualifying asset can be qualifying expenditure. The amounts specifically allowed are those which are deductible in computing the profits of the trade and those expended on plant and machinery. Where an amount is treated as expended on plant and machinery under section 291A, then it is not allowable expenditure if it was acquired from a group member. Where a non-group company is engaged to carry out R&D on behalf of the company, that non-group company can be located anywhere in the world.

This paragraph lists a number of items which cannot be included in qualifying expenditure —

1. acquisition costs,
2. interest paid or payable,
3. amounts paid to group members to carry on research and development activities, whether under a cost sharing arrangement or otherwise,
4. amounts paid in excess of an arms length price in relation to 3^rd party outsourcing,
5. any margin retained by a group member who organises 3^rd party outsourcing on behalf of the company, or
6. any amount that is a tax deductible expense, qualifies for capital allowances or is otherwise allowed for tax purposes elsewhere in the EEA.

(3) This subsection defines a ‘specified trade’.

(a) A specified trade means a trade, that is not an excepted trade within the meaning of section 21A, which consist of one or more of the following–

1. the managing, developing, maintaining, protecting, enhancing or exploiting of intellectual property,
2. the researching, planning, processing, experimenting, testing, devising, developing or other similar activity leading to an invention or creation of intellectual property, or
3. the sale of goods or the supply of services that derive part of their value from activities described in subparagraphs (i) and (ii), where those activities were carried on by the relevant company.

(b) If only part of a company’s trade meets the conditions set out in paragraph (a), then that part shall be a specified trade

(4) Any pre-trading expenditure will be deemed to be incurred in the year the company commences its trade.

Relevant Date: Finance Act 2021