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HMRC internal manual

International Manual

DT applications and claims - Types of income: Royalties

Patent royalties continued

In every case involving patent royalties you should ask to see a copy of the contract between the UK payer of the royalties and the person making the claim. Our more modern claim forms ask for this information. If an older version of a claim form is used you will need to write and ask for the information. You should bear in mind that an enquiry under the self assessment rules may be required. See INTM331000.

Deed of Assignment

In any case where you suspect that the claimant is not the originator of the work that is the subject of the claim you should ask to see the Deed of Assignment under the terms of which the claimant acquired the rights that are the subject of the claim or application.

When you receive the deed of assignment of the royalties you need to watch out for cases where the claimant company is merely acting as an Agent for another company or the individual creator of the work. You will have to refuse the claim and invite claims from the beneficial owners.

Special Relationship

Where the person in the UK who is paying the royalties is in some way connected to the recipient of the royalties - perhaps because one company owns the other or they have a common owner it is possible that the rate at which royalties are paid may not be at a commercial rate “arms length”. This is because there is a Special Relationship between the two parties to the contract.

Many double taxation agreements include provisions that deny or restrict relief where the amount of a royalty is influenced by a special relationship between the parties to the contract.

In all cases involving patent royalties you should ask the Inspector of Taxes who is responsible for the UK payer of the royalties for a report on form 4450/2FD.