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HMRC internal manual

Corporate Intangibles Research and Development Manual

HM Revenue & Customs
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Patent Box: supplementary: cost-sharing arrangements


Cost-sharing arrangements (‘CSA’) are a normal commercial arrangement allowing businesses to share the costs and risks of developing, producing or obtaining assets, services or rights. The participants will contribute to the activities in proportion to the benefits each expects to obtain.

A CSA may establish a separate legal entity or simply amount to contractual arrangements. Where the CSA is a company or partnership then the Patent Box calculation will be applied to the entity. But where there is no such entity then S357GC will be relevant.

S357GC applies where one of the parties to the arrangement holds a qualifying IP right or exclusive licence in respect of such a right and each of the parties involved is required to contribute to the development of the item to which the right relates or any product incorporating it. This includes developing ways in which the invention may be used or applied.

Provided that each party to the arrangement:

  • is entitled to a proportionate share of the income from exploiting the right that is proportionate to its participation in the arrangement, or
  • has one or more rights in respect of the invention as a result of which it receives income proportionate to its participation,

then the company is treated as if it held the relevant right, even if it does not hold the qualifying IP right or exclusive licence.

The company will therefore be entitled to claim the benefits of the regime in relation to that right subject to the normal rules of CTA10/Part 8A.

S357CG does not apply where the arrangement produces for the company a return within S357CB(1)(c)(economically equivalent to interest - see CIRD220130).


Three companies have R&D facilities which allow them to carry on complementary R&D in different fields of research with a view to combining the results into one specific product. There is no guarantee that the costs of each specialist area of research will be equal, so the participators may agree that the income arising from any resultant IP (including, but not exclusive to, patents) will be split according to the relative costs incurred by each participator. Alternatively they may agree that the costs incurred by each participator should be recorded and that the greatest contributor will be reimbursed a proportion of their costs by the other participators. The income arising from the resultant IP would then be split equally between the participators.

Accordingly, each of the participators will have contributed to the development of the IP and will be entitled to a share of the income from that IP as a result. To the extent that this income includes income from a qualifying patent it should qualify for the Patent Box.