CIRD45050 | Intangible assets: related party rules: licence not granted at market value

CTA09/S849AB and AD for periods from 1 January 2026

A market value adjustment only needs to be considered when

• the grant does not fall to be adjusted for transfer pricing (CTA09/S849AB(1A)(a)(i)), or

• the grant is one which would have not been subject to transfer pricing (CTA09/S849AB(1A)(a)(ii)),

• and when either
  • a company grants a licence or other right in respect of an intangible fixed asset to a related party at less than market value (CTA09/S849AB(2)), or
  • a company is granted a licence or other right in respect of an intangible fixed asset by a related party at above market value (CTA09/S849AB(3)).

Where those conditions are met, CTA09/S849AB(2)–(3) provides for a market value adjustment to be made to remove the tax advantage.

CTA09/S849AB is subject to S849AD.

Where CTA09/S849AB does not apply, because the grant falls to be adjusted for transfer pricing (CTA09/S849AB(1A)(a)(i)), the arm’s-length principle will apply to determine the value. FA26/S47 inserted subsection (3) into TIOPA10/S151 with effect from 1 January 2026 to ensure the cash equivalent is brought into account for the purposes of CTA09/PART8.

Note that the one-way street applies to related party licences. This means the provisions only make an adjustment to remove a tax advantage. That adjustment will either be made by TIOPA10/PART4 or under CTA09/S849AB depending on whether the transaction is cross-border (see below).

CT09/S849AD

The application of the market value rule is modified in relation to grants involving other taxes (CTA09/S849AD). It does not apply to grants giving rise to a distribution or employment income charge on any person under CTA10/PART23 (distributions) or Part 3 of ITEPA (employment income). This replicates the rules in CTA09/S847 for transfers (see CIRD45033).

Definition of cross-border (CTA09/S849AB(1B) – (1F))

CTA09/S849AB(1B) defines cross-border grant by reference to two broad situations, those situations are where the related party is either

• a UK resident company with a qualifying permanent establishment outside the UK (CTA09/S849AB(1B)(a)), or

• a non-UK resident company, individual or firm, except where the non-UK resident company, individual or firm has a permanent establishment in the UK with a relevant connection to the licence or other right that is subject to the grant (CTA09/S849AB(1B)(b) – (d)).

CTA09/S849AB(1C) defines ‘qualifying’ in relation to a related party’s permanent establishment outside the UK. Broadly, ‘qualifying’ means

• an election under CTA09/S18(1) (exemption for profits or losses of foreign permanent establishments) has been made requiring adjustment to be made to the taxable profits, and

• those adjustments include adjustment in respect of the licence or other right that is subject to the grant.

CTA09/S849AB(1D) defines ‘relevant connection’ in relation to the granted asset by reference to Chapter 4 or Part 2 as one that can be attributed to that permanent establishment.

CTA09/S849AB(1E) defines ‘relevant connection’ in relation to a branch or agency in relation to the granted asset.

CTA09/S849AB(1F) defines ‘branch or agency’.

CTA09/S849AB(12) defines “actual provision” and “arm’s length provision”.

For periods before 1 January 2026

For periods from 22 November 2017 to 31 December 2025 see CIRD48350.

For periods before 22 November 2017 CTA09/PART8 did not have a specific rule for related party licences. Other provisions such as transfer pricing and anti-avoidance provisions should be considered to counter any abuse to gain a tax advantage.