INTM620220 - Offshore Receipts in respect of Intangible Property (ORIP): Charge to tax on ORIP: Apportionment of amounts

ITTOIA05/Ch2A/S608G

Section 608G provides a basis for apportionment where:

  • a. the person receives, or is entitled to, an amount in respect of the enjoyment or exercise of rights to any intangible property which enables, facilitates or promotes UK sales and non-UK sales;

or,

  • b. the person receives, or is entitled to, an amount in respect of the enjoyment or exercise of rights to any intangible property which enables, facilitates or promotes UK sales and receives, or is entitled to, an amount for anything else.

The amount considered to be a UK-derived amount if a. applies will be an apportionment using the formula UK sales/total sales, provided this gives a just and reasonable answer. The amount considered to be a UK-derived amount if b. is in point will be calculated on a just and reasonable basis.

Example 1 for a.

If a. is in point the UK-derived amount will be the total income from the respective IP multiplied by the fraction calculated using the UK sales/total sales formula in relation to that IP (found at S608G(3)).

Person A is subject to ORIP and holds rights relating to specific intangible property. Person A receives £10 million in respect of those rights. The enjoyment or exercise of those rights enabled worldwide sales of £100 million; £75 million relates to sales outside the UK, with £25 million relating to UK sales. Applying the formula gives the following fraction:

£25 million / (£25 million + £75 million) = 25/100.

This fraction is applied to the amount received in respect of the intangible property of £10 million, resulting in a UK-derived amount of £2.5 million.

Example 2 for b.

Person B has rights relating to specific intangible property. Those rights have resulted in income of £14 million, with £4 million relating to the enjoyment or exercise of those IP rights which have assisted in UK sales and £10 million being a receipt for pure services provided by Person B. On a just and reasonable basis, the UK-derived amount will be £4 million.