Patent Royalty Income Section 234 TCA 1997

Section 234 TCA 1997 sets out the requirements for claiming exemption in respect of patent income. Where the patent income is being paid by a connected party, the legislation requires that the payer of the royalty must use the patent for the purpose of activities which would be regarded as the manufacture of goods within the meaning of Part 14 TCA 1997 or would be so regarded if they were carried on in the State by a company. Recently Revenue has received requests from practitioners to provide clarification of this requirement in the context of the phasing out of manufacturing relief.

Phasing out of manufacturing relief was effected by means of an amendment to the definition of “relevant accounting period” contained in Section 442(1) TCA 1997. In the case of a trade which commenced on or after 23 July 1998, the amended section provides that the term “relevant accounting period” for the purposes of the relief means an accounting period or part of an accounting period of a company ending on or before 31 December 2002. Thus a company which commenced trading on or after 23 July 1998 will not qualify for manufacturing relief after 31 December 2002.

This does not affect its entitlements under Section 234 however and it is confirmed that the exemption contained in Section 234 will continue to apply in a situation where the payer of the royalty is engaged in manufacturing activities within the meaning of Part 14 but is precluded from claiming the relief because of the provisions of Section 442..