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39 1997

TAXES CONSOLIDATION ACT, 1997

PART 29

Patents, Scientific and Certain Other Research, Know-How and Certain Training

CHAPTER 1

Patents

Interpretation ( Chapter 1 ).

[ITA67 s284; CTA76 s21(1) and Sch1 par35; FA97 s146(1) and Sch9 PtI par1(19)]

754. —(1) In this Chapter—

the commencement of the patent”, in relation to a patent, means the date from which the patent rights become effective;

income from patents” means—

(a) any royalty or other sum paid in respect of the user of a patent, and

(b) any amount on which tax is payable for any chargeable period by virtue of this Chapter;

Irish patent” means a patent granted under the laws of the State;

patent rights” means the right to do or to authorise the doing of anything which but for that right would be an infringement of a patent;

the writing-down period” has the meaning assigned to it by section 755 (2).

(2) In this Chapter, any reference to the sale of part of patent rights includes a reference to the grant of a licence in respect of the patent in question, and any reference to the purchase of patent rights includes a reference to the acquisition of a licence in respect of a patent; but, if a licence granted by a person entitled to any patent rights is a licence to exercise those rights to the exclusion of the grantor and all other persons for the whole of the remainder of the term for which the rights subsist, the grantor shall be treated for the purposes of this Chapter as thereby selling the whole of the rights.

(3) Where, under section 77 of the Patents Act, 1992 , or any corresponding provisions of the law of any country outside the State, an invention which is the subject of a patent is made, used, exercised or vended by or for the service of the State or the government of the country concerned, this Chapter shall apply as if the making, user, exercise or vending of the invention had taken place in pursuance of a licence, and any sums paid in respect thereof shall be treated accordingly.

Annual allowances for capital expenditure on purchase of patent rights.

[ITA67 s285; CTA76 s21(1) and Sch1 par36]

755. —(1) Where a person incurs capital expenditure on the purchase of patent rights, there shall, subject to and in accordance with this Chapter, be made to that person writing-down allowances in respect of that expenditure during the writing-down period; but no writing-down allowance shall be made to a person in respect of any expenditure unless—

(a) the allowance is to be made to the person in taxing the person's trade, or

(b) any income receivable by the person in respect of the rights would be liable to tax.

(2) (a) Subject to paragraphs (b) to (d), the writing-down period shall be the 17 years beginning with the chargeable period related to the expenditure.

(b) Where the patent rights are purchased for a specified period, paragraph (a) shall apply with the substitution for the reference to 17 years of a reference to 17 years or the number of years comprised within that period, whichever is the less.

(c) Where the patent rights purchased begin one complete year or more after the commencement of the patent and paragraph (b) does not apply, paragraph (a) shall apply with the substitution for the reference to 17 years of a reference to 17 years less the number of complete years which, when the rights begin, have elapsed since the commencement of the patent or, if 17 complete years have so elapsed, of a reference to one year.

(d) For the purposes of this subsection, any expenditure incurred for the purposes of a trade by a person about to carry on the trade shall be treated as if that expenditure had been incurred by that person on the first day on which that person carries on the trade unless before that first day that person has sold all the patent rights on the purchase of which the expenditure was incurred.

Effect of lapse of patent rights.

[ITA67 s286; CTA76 s21(1) and Sch1 par37]

756. —(1) Where a person incurs capital expenditure on the purchase of patent rights and, before the end of the writing-down period, any of the following events occurs—

(a) the rights come to an end without being subsequently revived;

(b) the person sells all those rights or so much of those rights as the person still owns;

(c) the person sells part of those rights and the net proceeds of the sale (in so far as they consist of capital sums) are not less than the amount of the capital expenditure remaining unallowed;

no writing-down allowance shall be made to that person for the chargeable period related to the event or for any subsequent chargeable period.

(2) Where a person incurs capital expenditure on the purchase of patent rights and, before the end of the writing-down period, either of the following events occurs—

(a) the rights come to an end without being subsequently revived;

(b) the person sells all those rights or so much of those rights as the person still owns, and the net proceeds of the sale (in so far as they consist of capital sums) are less than the amount of the capital expenditure remaining unallowed;

there shall, subject to and in accordance with this Chapter, be made to that person for the chargeable period related to the event an allowance (in this Chapter referred to as a “balancing allowance”) equal to—

(i) if the event is the rights coming to an end, the amount of the capital expenditure remaining unallowed, and

(ii) if the event is a sale, the amount of the capital expenditure remaining unallowed less the net proceeds of the sale.

(3) Where a person who has incurred capital expenditure on the purchase of patent rights sells all or any part of those rights and the net proceeds of the sale (in so far as they consist of capital sums) exceed the amount of the capital expenditure remaining unallowed, if any, there shall, subject to and in accordance with this Chapter, be made on that person for the chargeable period related to the sale a charge (in this Chapter referred to as a “balancing charge”) on an amount equal to—

(a) the excess, or

(b) where the amount of the capital expenditure remaining unallowed is nil, the net proceeds of the sale.

(4) Where a person who has incurred capital expenditure on the purchase of patent rights sells a part of those rights and subsection (3) does not apply, the amount of any writing-down allowance made in respect of that expenditure for the chargeable period related to the sale or any subsequent chargeable period shall be the amount determined by—

(a) subtracting the net proceeds of the sale (in so far as they consist of capital sums) from the amount of the expenditure remaining unallowed at the time of the sale, and

(b) dividing the result by the number of complete years of the writing-down period which remained at the beginning of the chargeable period related to the sale,

and so on for any subsequent sales.

(5) References in this section to the amount of any capital expenditure remaining unallowed shall in relation to any event be construed as references to the amount of that expenditure less any writing-down allowances made in respect of that expenditure for chargeable periods before the chargeable period related to that event, and less also the net proceeds of any previous sale by the person who incurred the expenditure of any part of the rights acquired by the expenditure, in so far as those proceeds consist of capital sums.

(6) Notwithstanding subsections (1) to (5)

(a) no balancing allowance shall be made in respect of any expenditure unless a writing-down allowance has been, or, but for the happening of the event giving rise to the balancing allowance, could have been, made in respect of that expenditure, and

(b) the total amount on which a balancing charge is made in respect of any expenditure shall not exceed the total writing-down allowances actually made in respect of that expenditure less, if a balancing charge has previously been made in respect of that expenditure, the amount on which that charge was made.

Charges on capital sums received for sale of patent rights.

[ITA67 s288; CTA76 s21(1) and Sch1 par38]

757. —(1) (a) Subject to paragraphs (b) and (c), where a person resident in the State sells any patent rights and the net proceeds of the sale consist wholly or partly of a capital sum, that person shall, subject to this Chapter, be charged to tax under Case IV of Schedule D for the chargeable period in which the sum is received by that person and for successive chargeable periods, being charged in each period on the same fraction of the sum as the period is of 6 years (or such less fraction as has not already been charged).

(b) Where the person by notice in writing served on the inspector not later than 12 months after the end of the chargeable period in which the capital sum was received elects that the whole of that sum shall be charged to tax for the chargeable period in which the sum is received, it shall be charged to tax accordingly.

(c) Where the person by notice in writing served on the inspector not later than 12 months after the end of the chargeable period in which the capital sum was received applies to have the fraction referred to in paragraph (a) determined as being other than the same fraction as the chargeable period is of 6 years, then, if it appears to the Revenue Commissioners that hardship is likely to arise having regard to all the circumstances of the case unless a direction is given under this paragraph, they may direct that the fraction shall be the same fraction of the sum as the chargeable period is of a number of years other than 6 years, and that the charge shall be spread accordingly.

(2) (a) Where a person not resident in the State sells any patent rights and the net proceeds of the sale consist wholly or partly of a capital sum, and the patent is an Irish patent, then, subject to this Chapter—

(i) the person shall be chargeable to tax in respect of that sum under Case IV of Schedule D, and

(ii) section 238 shall apply to that sum as if it were an annual payment payable otherwise than out of profits or gains brought into charge to tax.

(b) Where, not later than 12 months after the end of the year of assessment in which the sum referred to in paragraph (a) is paid, the person to whom it is paid, by notice in writing to the Revenue Commissioners, elects that the sum shall be treated for the purpose of income tax for that year and for each of the 5 succeeding years as if one-sixth of that sum were included in that person's income chargeable to tax for all those years respectively, it shall be so treated, and all such repayments and assessments of tax for each of those years shall be made as are necessary to give effect to the election; but—

(i) the election shall not affect the amount of tax to be deducted and accounted for under section 238 ,

(ii) where any sum is deducted under section 238 , any adjustments necessary to give effect to the election shall be made by means of repayment of tax, and

(iii) those adjustments shall be made year by year and as if one-sixth of the sum deducted had been deducted in respect of tax for each year, and no repayment of or of any part of that portion of the tax deducted which is to be treated as deducted in respect of tax for any year shall be made unless and until it is ascertained that the tax ultimately to be paid for that year is less than the amount of tax paid for that year.

(3) (a) In subsection (2), “tax” shall mean income tax, unless the seller of the patent rights, being a company, would be within the charge to corporation tax in respect of any proceeds of the sale not consisting of a capital sum.

(b) Where paragraph (a) of subsection (2) applies to charge a company to corporation tax in respect of a sum paid to it, paragraph (b) of that subsection shall not apply; but—

(i) the company may, by notice in writing given to the Revenue Commissioners not later than 12 months after the end of the accounting period in which the sum is paid, elect that the sum shall be treated as arising rateably in the accounting periods ending not later than 6 years from the beginning of the accounting period in which the sum is paid (being accounting periods during which the company remains within the charge to corporation tax by virtue of subsection (2) (a)), and

(ii) there shall be made all such repayments of tax and assessments to tax as are necessary to give effect to any such election.

(4) Where the patent rights sold by a person, or the rights out of which the patent rights sold by a person were granted, were acquired by the person by purchase and the price paid consisted wholly or partly of a capital sum, subsections (1) to (3) shall apply as if any capital sum received by the person on the sale of the rights were reduced by the amount of that sum; but—

(a) where between the purchase and the sale the person has sold part of the patent rights acquired by the person and the net proceeds of that sale consist wholly or partly of a capital sum, the amount of the reduction to be made under this subsection in respect of the subsequent sale shall itself be reduced by the amount of that sum, and

(b) nothing in this subsection shall affect the amount of tax to be deducted and accounted for under section 238 by virtue of subsection (2) and, where any sum is deducted under section 238 , any adjustment necessary to give effect to this subsection shall be made by means of repayment of tax.

(5) This section shall apply in relation to any sale of part of any patent rights as it applies in relation to sales of patent rights.

Relief for expenses.

[ITA67 s290(1) to (3); CTA76 s21(1) and Sch1 par39]

758. —(1) Notwithstanding section 81 , in computing the profits or gains of any trade, there shall be allowed to be deducted as expenses any fees paid or expenses incurred in obtaining for the purposes of the trade the grant of a patent or an extension of the term of a patent.

(2) Where—

(a) a person, otherwise than for the purposes of a trade carried on by the person, pays any fees or incurs any expenses in connection with the grant or maintenance of a patent or the obtaining of an extension of a term of a patent, and

(b) those fees or expenses would, if they had been paid or incurred for the purposes of a trade, have been allowable as a deduction in estimating the profits or gains of the trade,

there shall be made to the person for the chargeable period in which those fees or expenses were paid or incurred an allowance equal to the amount of those fees or expenses.

(3) Where a patent is granted in respect of any invention, an allowance equal to so much of the net amount of any expenses incurred by an individual who, whether alone or in conjunction with any other person, actually devised the invention as is properly ascribable to the devising of that invention (not being expenses in respect of which, or of assets representing which, an allowance is to be made under any other provision of the Tax Acts) shall be made to that individual for the year of assessment in which the expenses were incurred.

Spreading of revenue payments over several years.

[ITA67 s195B(3) and (6) and s291; CTA76 s21(1) and Sch1 par40; FA93 s10(1)]

759. —(1) In this section, any reference to the tax payable by a person includes, in cases where the income of an individual's spouse is deemed to be the income of the individual, references to the income tax payable by the individual's spouse.

(2) Where a royalty or other sum to which section 237 or 238 applies is paid in respect of the user of a patent and that user extended over a period of 6 complete years or more, the person receiving the payment may require that the tax payable by that person by reason of the receipt of that sum shall be reduced so as not to exceed the total amount of tax which would have been payable by that person if that royalty or sum had been paid in 6 equal instalments at yearly intervals, the last of which was paid on the date on which the payment was in fact made.

(3) Subsection (2) shall apply in relation to a royalty or other sum where the period of the user is 2 complete years or more but less than 6 complete years as it applies to the royalties and sums mentioned in that subsection, but with the substitution for the reference to 6 equal instalments of a reference to so many equal instalments as there are complete years comprised in that period.

(4) Nothing in this section shall apply to any sum to which section 238 applies by virtue of section 757 .

Capital sums: effect of death, winding up and partnership changes.

[ITA67 s195B(3) and (6) and s293; CTA76 s21(1) and Sch1 par42; FA93 s10(1)]

760. —(1) In this section, any references to tax paid or borne or payable or to be paid or borne by a person include, in cases where the income of an individual's spouse is deemed to be income of the individual, references to the income tax paid or borne, or payable or to be paid or borne, by the individual's spouse.

(2) Where a person on whom, by reason of the receipt of a capital sum, a charge is to be, or would otherwise be, made under section 757 dies or, being a body corporate, commences to be wound up—

(a) no sums shall be charged under that section on that person for any chargeable period subsequent to that in which the death takes place or the winding up commences, and

(b) the amount to be charged for the chargeable period in which the death occurs or the winding up commences shall be increased by the total amounts which but for the death or winding up would have been charged for subsequent chargeable periods.

(3) (a) In the case of a death, the personal representatives may, by notice in writing served on the inspector not later than 21 days after notice has been served on them of the charge to be made by virtue of this section, require that the tax payable out of the estate of the deceased by reason of the increase provided for by this section shall be reduced so as not to exceed the amount determined in accordance with paragraph (b).

(b) The amount referred to in paragraph (a) shall be the total amount of tax which would have been payable by the deceased or out of his or her estate by reason of the operation of section 757 in relation to the capital sum if, instead of the amount to be charged for the year in which the death occurs being increased by the whole amount of the sums charged for subsequent years, the several amounts to be charged for the years beginning with that in which the capital sum was received and ending with that in which the death occurred had each been increased by that whole amount divided by the number of those years.

(4) (a) In this subsection, “the relevant period” has the same meaning as in Part 43 .

(b) Where, under Chapter 4 of Part 9 as modified by Part 43 , charges under section 757 are to be made on 2 or more persons as being the persons for the time being carrying on a trade, and the relevant period comes to an end, subsection (2) shall apply in relation to the ending of the relevant period as it applies where a body corporate commences to be wound up.

(c) Where paragraph (b) applies—

(i) the additional sums which under subsection (2) are to be charged for the year in which the relevant period ends shall be aggregated and apportioned among the members of the partnership immediately before the ending of the relevant period according to their respective interests in the partnership profits at that time and each partner (or, if that partner is dead, his or her personal representatives) charged for his or her proportion, and

(ii) each partner (or, if that partner is dead, his or her personal representatives) shall have the same right to require a reduction of the total tax payable by him or her or out of his or her estate by reason of the increase provided for by this section as would have been exercisable by the personal representatives under subsection (3) in the case of a death, and that subsection shall apply accordingly but as if the reference to the amount of tax which would have been payable by the deceased or out of his or her estate in the event mentioned in that subsection were a reference to the amount of tax which would in that event have been paid or borne by the partner in question or out of his or her estate.

Manner of making allowances and charges.

[ITA67 s292; CTA76 s21(1) and Sch1 par41]

761. —(1) An allowance or charge under this Chapter shall be made to or on a person in taxing the person's trade if—

(a) the person is carrying on a trade the profits or gains of which are, or, if there were any, would be, chargeable to tax under Case I of Schedule D for the chargeable period for which the allowance or charge is made, and

(b) at any time in the chargeable period or its basis period the patent rights in question, or other rights out of which they were granted, were or were to be used for the purposes of that trade;

but nothing in this subsection shall affect the preceding provisions of this Chapter allowing a deduction as expenses in computing the profits or gains of a trade or requiring a charge to be made under Case IV of Schedule D.

(2) Except where provided for in subsection (1), an allowance under this Chapter shall be made by means of discharge or repayment of tax and shall be available against income from patents, and a charge under this Chapter shall be made under Case IV of Schedule D.

Application of Chapter 4 of Part 9 .

[ITA67 s299(4) (b) (iii) and s303(1); CTA76 s21(1) and Sch1 par46 and par49]

762. —(1) Subject to subsection (2), Chapter 4 of Part 9 shall apply as if this Chapter were contained in that Part, and any reference in the Tax Acts to any capital allowance to be given by means of discharge or repayment of tax and to be available or available primarily against a specified class of income shall include a reference to any capital allowance given in accordance with section 761 (2).

(2) In Chapter 4 of Part 9 , as applied by virtue of subsection (1) to patent rights—

(a) the reference in section 312 (5) (a) (i) to the sum mentioned in paragraph (b) shall in the case of patent rights be construed as a reference to the amount of the capital expenditure on the acquisition of the patent rights remaining unallowed, computed in accordance with section 756 , and

(b) the reference in section 316 (1) to any expenditure or sum in the case of which a deduction of tax is to be or may be made under section 237 or 238 shall not include a sum in the case of which such a deduction is to be or may be so made by virtue of section 757 .