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Income Tax (Trading and Other Income) Act 2005

Section 195: Seller controlled by buyer etc.

808.This section ensures that if the seller and buyer are under common control:

  • the general rule in section 192 does not apply; and

  • the parties to the transaction may not elect for the payment for know-how to be treated as a capital payment for goodwill.

809.The section is based on section 531(7) of ICTA.

810.For the purposes of this section, “control” is defined (through section 878(6)) by reference to section 840 of ICTA. The ICTA definition of “control” is identical in effect to that in section 574 of CAA. But as the relevance of “control” in this Act goes wider than this Chapter, the ICTA definition is used here.

811.This section is one of the exceptions to the general rule in section 847 of this Act that a firm is not to be regarded for tax purposes as a separate entity. If a firm is connected with the seller or purchaser of its know-how the payment for know-how is treated as one for goodwill.

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