INTM620120 - Introduction to Offshore Receipts in respect of Intangible Property (ORIP): Overview

Chapter 2A, Part 5 of Income Tax (Trading and Other Income) Act 2005 (ITTOIA05) has effect from 6 April 2019 and applies on an income tax year basis. Chapter 2A was amended by regulations (The Income Tax (Trading and Other Income) Act 2005 (Amendments to Chapter 2A of Part 5) Regulations 2019). Most of the amendments made are wholly-relieving and treated as having effect from 6 April 2019 when the ORIP rules commenced. The other amendments have effect prospectively from 5 November 2019.

There is also an anti-forestalling rule which applies from 29 October 2018.

The provisions are explained further in INTM620200, but in broad summary are as follows:

  • Unless an exemption applies, a person is subject to an income tax charge if they are not resident in the UK nor a full treaty territory, and UK-derived amounts (see below) arise to them in the tax year.
  • Income tax is charged on the full quantum of the UK-derived amounts arising in the tax year at the relevant rate of income tax.
  • The person liable to the charge is the person receiving, or entitled to, the UK-derived amounts.

A UK-derived amount is an amount (whether capital or revenue in nature) made in respect of the enjoyment or exercise of intangible property rights where the enjoyment or exercise of those rights (or rights derived directly or indirectly from those rights) enables, facilitates or promotes UK sales.

For the purposes of this measure, “UK sales” means any services, goods or other property either provided in the UK, or to persons in the UK. This is subject to rules for resellers that have the effect of excluding the provision of services, goods or other property from UK sales when certain conditions are met. The rules for providers of online advertising are applied in such a way as to ensure consistency with the providers of other goods and services, so that such services amount to UK sales where the advertising targets persons in the UK.

In computing the tax charge, if a person receives or is entitled to receive amounts in respect of intangible property that enable, facilitate or promote both UK and non-UK sales, the proportion allocated to UK sales is given by the formula (UK sales/total sales), unless this does not produce a just and reasonable result.

Similarly, if a person receives or is entitled to amounts in respect of intangible property that enables, facilitates or promotes both UK sales and amounts in respect of anything else, the apportionment between these two amounts is made on a just and reasonable basis.

Intangible property is given a very wide definition for the purposes of Chapter 2A, being any property that is not:

  • tangible property,
  • an estate, interest or right over land,
  • a right in respect of the two exclusions above,
  • a financial asset (within the meaning given by s806 Corporation Tax Act 2009, CTA09),
  • a share or other right in relation to the profits, governance or winding up of a company, or
  • any property of a prescribed description.

Further explanation is provided at INTM620750.

There are a number of exemptions to the tax charge, explained further in INTM620310 onwards:

  • Limited UK sales – if the person (together with any connected person) has UK sales of £10m or less in the tax year.
  • Company resident in a specified territory – HMRC have a power to create a list of specified territories. Persons to which these rules apply will generally be companies. This exemption takes out of scope those companies in specified non-full treaty territories that would otherwise be within scope. There are various conditions that must also be met for this exemption to apply.
  • Business undertaken in the territory – if the person is resident in the territory and all (or substantially all) of the relevant activity in relation to the IP is, and always has been, undertaken in the territory, the person is able to make a claim to be exempt from charge. This exemption only applies if the IP has not been transferred from a related person and is not derived from IP held by a related person.
  • Foreign tax at least half of UK tax – this exemption applies to remove from charge persons who pay tax on the UK-derived amounts in their territory of residence of at least half the amount they would pay under this legislation. This exemption does not apply if the tax due in the territory of residence is determined under tax provisions designed to allow any person’s control over the tax payable.
  • Income of opaque partnerships taxable in full treaty territory – this exemption applies to remove from charge the partners in an opaque partnership where UK-derived amounts arise to the partnership and are chargeable in the partnership’s territory of residence.
  • Certain bodies corporate that are transparent in a full treaty territory – this exemption applies to remove from charge corporate bodies that are incorporated in a full treaty territory, regarded as tax transparent according to the laws of that territory, and are wholly owned by persons resident in that territory.
  • Exemption for double taxation on amounts within the same control group – this exemption applies to deal with circumstances where a charge arises to two companies within the same group in respect of the same income arising from intangible property.

There is a targeted anti-avoidance rule (TAAR), which applies to arrangements entered into after 28 October 2018 a main purpose of which is to prevent amounts being subject to the ORIP charge, or which is contrary to the object and purpose of a treaty. If the TAAR is in point, the counteraction is made by making an adjustment on a just and reasonable basis, see INTM620510.

If income tax due under this legislation remains unpaid 6 months after the relevant date, a designated officer may issue a notice to a person (or persons) in the same control group, requiring payment of any unpaid tax and interest within 30 days, see INTM620420.