PLC - Holding and exploiting IP: Tax Issues Flashcards
In what two ways might a taxpayer obtain tax relief for expenditure in creating and developing IP?
Under a specific tax regime such as R&D tax credits, or under general taxation principles.
What is the usual rule in the UK for relieving expenditure incurred by a company in the creation of IP?
The expenditure is usually brought into account for tax purposes (and a deduction is available) when the expenditure is recognised for accounting purposes in the P&L. This is generally when the expenditure is incurred.
What is a cost-sharing agreement?
An agreement where two or more companies contribute to the cost of developing an asset, such as IP, and each company derives certain specified rights in the IP that is developed.
What are the advantages of cost-sharing agreements?
It allows each participating company to own rights from inception, avoiding tax charges on transfers, and it removes the need for potentially taxable intra-group payments from one company to another.
What points require special attention when drafting a cost-sharing agreement?
The arrangements must be arm’s length, and should properly reflect the arrangement that is in place.
What percentage tax deduction can SMEs claim in respect of expenditure incurred from 1 April 2012 on qualifying R&D activities carried out as part of a trade?
230 per cent as from 1 April 2015 (225 per cent before then).
If an SME is loss-making following the deduction of R&D tax relief, what can be done with the loss that relates to the R&D deduction?
It can be surrendered in part to HMRC in exchange for a cash payment, known as a payable R&D tax credit.
What is an SME for the purposes of the R&D tax credit legislation?
An independent company which together with associated companies has less than 500 employees and either annual turnover not exceeding 100m euros or a balance sheet totalling less than 86 million euros.
What are large companies entitled to by way of relief for qualifying R&D expenditure?
Large companies are entitled to an “above the line” tax credit for expenditure incurred on qualifying R&D on or after 1 April 2013. The credit is payable in cash regardless of the tax position of the company. As of 1 April 2015, the credit is paid at the rate of 11% of qualifying expenditure. Before 1 April 2016 the credit sat alongside a large companies super-deduction (under which large companies were entitled to a deduction of 130% for qualifying R&D expenditure). The above the line tax credit fully replaced the super-deduction on and from 1 April 2016.
Can large companies claim a payable R&D tax credit like SMEs?
No.
What is the “above the line” tax credit that has recently been introduced for large companies?
A 10 per cent credit for expenditure incurred on qualifying R&D on or after 1 April 2013 which will be payable in cash regardless of the tax position of the company.
How does the above the line tax credit for R&D expenditure relate to the existing super-deduction for R&D expenditure?
The credit sits alongside the existing super-deduction from 1 April 2013 and will replace the super-deduction from 1 April 2016.
If a company purchases IP outright, how is tax relief normally given for that purchase?
By way of amortisation, the amount and timing of which should be in accordance with UK GAAP or IAS (as appropriate)
Can expenditure on the outright acquisition of IP be relieved other than by way of amortisation in accordance with GAAP or IAS?
Yes - subject to conditions, section 730 CTA 2009 applies where no amortisation charge is made in the accounts.
If IP is acquired by licence, how is the cost of the licence relieved for tax purposes (assuming the licence does not equate to effective outright ownership)?
As and when royalty payments are made.
