Taxand have published an article – Payments For Leasing Bandwidth: Business Profit Or Royalties? – following a recent case in Indonesia. The case involved a payment from Indonesia to a UK company (Intelstat) for the use of satellite bandwidth, and quotes similar cases in India and Australia. The court found for the taxpayer, that the lease payments were business profits and not a payment of royalties.
The point at issue was the interpretation of the phrase “the use of, or the right to use, industrial, commercial or scientific equipment” in the UK/Indonesian tax treaty. This phrase appears in the royalties article of a number of older UK tax treaties and seems at odds with the more usually encountered definition of royalties in this context as relating to the direct use of intellectual property, rather than to the use of the product of intellectual property (the equipment).
I’ve been thinking about doing a podcast for a while, and decided to experiment with a podcast on the highlights of the Budget for IP. It should stream in the browser, let me know if you want to hear more in future.
ip-tax podcast: UK Budget & IP
Immediate updates on IP-related Budget thoughts will be posted on twitter – a more detailed update will be posted here when I’ve had time to read through the inevitable small print that arrives after the Chancellor sits down!
What’s expected on IP tax (at least):
- an update on CFCs – should have some IP content to it
- update on the consultation on IP tax and R&D which closed on February 22nd
- more information on the patent box (in the consultation update)
There might be more …
Now back in the UK, and with a functioning computer again, I’ve been digging a little further into the other IP proposals in the HM Treasury Corporate Tax reform document, and looking at the review of the intangibles tax regime published by HMRC – see earlier post for the patent box proposals.
The IFS has released its comments on the consultation over the patent box. They have concerns that EU laws would mean that companies could benefit from the patent box without having associated real activity in the UK.
HM Treasury have published the consultation document on IP tax reform, including R&D tax credits – quick thoughts below the cut, more details when I get back from the US next week.
HMRC has published the latest set of details on the number and value of R&D tax relief and R&D tax credit claims, covering claims in 2008-9. There is an increase in the number and value of claims, but it is surprisingly small considering that 2008-9 was the catch-up deadline to get in claims for relief on expenditure over the previous six years (the relief now has to be claimed in the company tax return or amended return).
The total number of companies claiming the relief was 8,.350 in 2008-9 – that seems a very low number, and it may make the scheme vulnerable to change/removal in the upcoming consultation on how IP is taxed in the UK.
XX v HMRC (and related appeals) (TC00689, released 17/9/10 but has taken some time to surface on the tribunal site) – the decision was anonymised, presumably because of the defence connection:
The First Tier Tribunal has upheld a claim by an inventor (XX) that the licence fees paid to him by a company of which he was a director were trading income, and not employment income – saving National Insurance Contributions for the company at the very least.
It looks as though Asda and Wal*Mart have succeeded in getting HMRC and the IRS both to recognise a transfer pricing adjustment on royalties – as it’s a settlement, there isn’t a lot of information about, so it isn’t wholly clear whether this was the result of direct negotiation or through invoking the mutual agreement procedures. Either way, Asda has to pay another £115m in tax, whilst Wal*Mart will get a corresponding deduction.