INTM620370 - Offshore Receipts in respect of Intangible Property (ORIP): Exemptions: Double taxation on amounts within the same control group

ITTOIA05/Ch2A/S608MC

This exemption deals with circumstances where a Chapter 2A charge arises to two companies within the same group in respect of the same income arising from intangible property.

It is possible that where two group entities who are not resident in full treaty territories are entitled to income in respect of the same intangible property, and where payments in relation to that intangible property flow between those two group entities, a Chapter 2A charge could arise in respect of the two amounts of income.

Section 608MC operates by identifying circumstances where such double charges arise, and then ensuring that only a single Chapter 2A charge applies. There is no provision for relief where amounts flow from an entity not resident in a full treaty territory to an entity in a full treaty territory.

The mechanics of this exemption are relatively straightforward. Section 608MC(1) sets out the following conditions, which must be met in order for the exemption to apply:

  • Two persons (A and B) are in the same control group throughout a tax year
  • Neither A nor B are involved in an arrangement with a main purpose of obtaining a tax advantage for either person, or any other person.
  • There is an income tax charge under section 608A on a UK-derived amount arising to A, and A is not entitled to any relief (such as an exemption or a relief under any relevant double taxation arrangements) in respect of that UK-derived amount, and
  • The UK-derived amount arising to A is a direct or indirect payment from B in respect of rights (“relevant rights”) that:
  • Constitute any of B’s intangible property; and
  • which derive, directly or indirectly, from rights that constitute any of A’s intangible property.

Section 608MC(2) provides the mechanism for eliminating the double charge that would otherwise arise, by reducing the UK-derived amount arising to B by the amount of the UK-derived amount arising to A that gives rise to an income tax charge under section 608A.

Section 608MC(3) provides for a just and reasonable apportionment in cases where a UK-derived amount is in respect of relevant rights and anything else.

The meaning of control group is provided by section 608S (see INTM620760).

Example 1

Company A and company B are part of the same control group and are both resident in a non-full tax treaty territory. Company A is chargeable to tax under Chapter 2A in relation to a UK-derived amount of £10m. However, company A’s UK-derived amount of £10m is derived from a payment of £10m from company B.

The payment from company B to company A is in respect of a licence of intangible property from company A to company B. The license grants rights to company B which enables company B to generate a separate UK-derived amount of £12m.

The application of Section 608MC ensures that whilst company A’s Chapter 2A charge remains unchanged at £10m, company B’s Chapter 2A charge is reduced from £12m to £2m, after taking into account the £10m intra-group payment for relevant rights.

Overall, there is a total Chapter 2A charge for the group of £12m, which reflects the £2m retained by company B, and the £10m received by company A.