Corporation Tax Act 2010 section 357BLC

Qualifying expenditure on relevant R&D sub-contracted to unconnected persons

Section 357BLC defines what counts as qualifying expenditure when a company sub-contracts relevant research and development work to persons who are not connected to the company, and explains how this classification changes when a foreign permanent establishment exemption election is in place.

• Qualifying expenditure on R&D sub-contracted to unconnected persons means payments made during the relevant period to an unconnected party for relevant R&D that the company has contracted out to them, where "connected" has the meaning given by section 1122 of CTA 2010.
• Where a company has elected under section 18A of CTA 2009 for exemption of profits or losses of its foreign permanent establishments, any sub-contracted R&D payments to unconnected persons that feed into the foreign permanent establishments calculation are reclassified as qualifying expenditure on R&D sub-contracted to connected persons instead.
• This reclassification applies only to the extent that the expenditure is brought into account in calculating a relevant profits amount or relevant losses amount that is aggregated in determining the company's foreign permanent establishments amount for the period.
• Where a payment covers both the sub-contracted R&D work and other matters, only the portion properly attributable to the R&D work is taken into account — the remainder is disregarded.