The Notes give further details of the Budget announcements on:

– the widening of the review of intellectual property to include goodwill and other intangibles, and

– a deferral relief for gains on substantial shareholdings held by companies.

Welcoming the development of the proposals, Paymaster General, Dawn Primarolo said:

“These measures are part of a wider package which will ensure that UKbusinesses can compete effectively in the global market place. They are also intended to increase the UK’s attractiveness as a first-class place in which to do businesses.”

Subject to the outcome of consultation on the Technical Notes, the Government plans to publish draft clauses at the time of the Pre-Budget Report.


Reform of the Taxation of Intangibles Including Goodwill

1. The economy is increasingly knowledge driven. Knowledge is important to all industries, whether “low” or “high” tech, because itis crucial to innovation and the ability to create and exploit new products and markets. Intangible assets are an important resource in the knowledge based economy, so it is important that the tax system treats them in an up to date way.

2. So the Government is considering a reform of the taxation of intellectual property, goodwill and other intangibles. This would:

– modernise the existing rules giving relief for expenditure on intellectual property; and

– introduce a new relief for purchases of goodwill and other intangibles.

3. The Technical Note looks at the issues raised by a reform of this sort. The focus is on promoting simplicity, increasing flexibility and minimising compliance costs, while better equipping the tax system to meet the needs of today’s economy. Closer alignment betweentax and accountancy treatment is examined as a way of achieving theseobjectives.

4. The Technical Note also contains proposals to modernise the rulesgoverning deduction at source from royalty payments. These include streamlining the procedures for giving relief due under treaties.

Deferral Relief for Substantial Shareholdings

5. The Government envisages that the new deferral relief for substantial shareholdings held by companies would be a major relaxation to the capital gains rules for companies and would promotebusiness investment and efficiency. It would apply to:

– defer the charge on a gain arising, where

– any qualifying shareholder company which has

– a substantial shareholding in a trading company, or

– a substantial shareholding in the holding company of a trading

group (including a sub-holding company)

– sells

– the whole or part of that shareholding; or

– a business asset within the existing business asset rollover relief

– and reinvests the proceeds in such an asset or


6. The Technical Note explores the details of the broad approach, including the various definitions such as trading company and tradinggroup, qualifying substantial holdings and the time limits within which the reinvestment has to be made. The special features which have to apply for groups of companies are discussed as are the measures which might be necessary to protect against exploitation of the relief.

7. The two Technical Notes are entitled

– “Reform of the taxation of intellectual property, goodwill and other intangible assets”;

– “Corporation Tax : Chargeable Gains : Deferral Relief for Gains onDisposal of Substantial Shareholdings”

Both can be downloaded from the Inland Revenue website or obtained by post from:

Inland Revenue
Business Tax Division
Room 312
22 Kingsway

8. Comments are invited on both these technical notes. These should reach the Inland Revenue by 11 August 2000 or earlier if possible.


9. These two technical notes are the latest in a series of Governmentdocuments inviting public comment on options for tax reforms to make the UK an attractive place to do business and enable UK businesses tocompete successfully.

10. The proposals on intangibles are a part of the Government’s widerinitiative to promote innovation which began with `Innovating for thefuture’ in 1998. Since then a range of measures have been introduced by the Chancellor, the Secretary of State for Trade and Industry and other Ministers to promote innovation and competitiveness. In the field of taxation, a number of measures have already been introduced,including the R&D tax credit for SMEs, tax incentives to promote corporate venturing, and enterprise management incentives. All these reforms should benefit innovative, growing, firms. In Budget 2000, the Chancellor also announced the abolition of stamp duty on intellectual property transactions, and a new tax relief for the costof acquiring spectrum licences and indefeasible rights of use in communications cables.

11. The consultation on a new relief for gains on the disposal of substantial shareholdings held by companies is part of a wide rangingpackage of tax reforms announced in Budget 2000 Press Releases dated 21 March 2000 (REV/C&E2 and REVBN2C).

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