Private ruling: Research and development tax incentive
Date of advice: 30 August 2023
Published: 9 October 2023
Ruling period: Income Years ended 30 June 20XX
Date scheme commenced: DD MM 20XX

Ruling: Q1: Are the Research and Development (R&D) activities conducted by Company X subject to an Agreement with Entity Y conducted for Company X and not to a significant extent for Entity Y for the purpose of section 355-210 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: Does section 355-405 of the ITAA 1997 'Expenditure not at risk' apply to expenditure incurred by Company X on the underlying R&D activities conducted by Company X in delivering the services under the Agreement with Entity Y to deny the notional deductions for the expenditure? | A2: No | Q3: Is the funding received by Company X from Entity Y an assessable R&D recoupment for the purposes of section 355-440 of the ITAA 1997? | A3: No

Relevant facts and circumstances: Company X was incorporated on DD MM 20XX. Company X is an R&D company developing a new and novel product (the Product). In MM 20XX, Company X has entered an agreement with Entity Y (the Agreement) to support ongoing research and development of the Product. Funding from Entity Y will support studies to develop the Product and scale-up manufacturing processes. Company X has claimed R&D tax incentive for the income year ended 30 June 20XX onwards and intends to continue to claim R&D tax incentive for the income year ended 30 June 20XX and subsequent years. The R&D tax incentive applications for the 20XX and the 20XX income years provide the details of Company X's R&D activities. Company X has been and will be conducting R&D activities as defined by section 355-20 of the ITAA 1997 in each of the 20XX and the 20XX income years. The R&D activities that Company X has been and will be conducting in the 20XX and the 20XX income year are subject to the Agreement with Entity Y are conducted partly in Australia and partly Overseas. For eligible R&D activities that Company X has been and will be conducting Overseas subject to the Agreement with Entity Y are covered by Overseas Findings Certificates issued by AusIndustry to Company X. For any activities conducted by Company X and subject to the Agreement with Entity Y that are not eligible R&D activities, Company X will not claim the R&D Tax Incentive for those activities. For R&D activities conducted either partly or solely outside Australia, that are not covered by the overseas findings approved by AusIndustry, Company X will not claim R&D Tax Incentive against those activities. The Agreement Company X provided a copy of the Agreement with Entity Y. The Agreement between Company X and Entity Y includes the following articles: Entity Y does not have any rights over the manufacture or underlying Intellectual Property (IP) of the Product. Rather, through the Agreement with Company X, Entity Y can access the data. That is, Entity Y only has rights over the copyright in respect of sharing aspects and outcomes of the research from the trial and no other IP. Entity Y have rights to data only and to share the reports with other relevant entities - they are not seeking a right to make the Product. The purpose of the Agreement and the funding is to assist Company X to develop the Product for Company X. Entity Y is assisting Company X to get the Product approved to release it on the market. Entity Y is wanting to do this so that once the Product is on the market, they can purchase it. Entity Y cannot develop it and cannot manufacture it. The Statement of Works Company X has provided the Statement of Work which specifies tasks to be completed under the Agreement and Milestone Payment Schedule. The SOW sets out the technical requirements and the specific tasks that will be undertaken to complete the Agreement. It also includes a Milestone Payment Schedule within the SOW that makes reference to specific underlying tasks that need to be completed before each relevant payment milestone is met. Some of the tasks covered under the Agreement are not eligible for R&D Tax Incentive and will not be claimed. Company expenditure Overall, Company X has raised approximately $XXX million while working on the development and annually Company X are spending $XXX million on R&D. However, the Product is still years away from getting released. The type of development that Company X is conducting can take over a decade to get to market. At this stage, Company X is spending money on developments that have technical risks. For the income year ended 30 June 20XX, Company X's estimated expenditure on activities conducted as part of delivering the services under the Agreement is $XXX million. The expenditures are being claimed to have been incurred in delivering tasks under the SOW. There are multiple milestones and activities in the SOW to reduce the risk for Company X that if one or two activities cannot be completed or need to be modified, then Company X would only miss the payment in relation to those failed activities. The Agreement is designed in multiple steps due to the uncertainty of the activities and to reduce Company X's risk of not receiving payments. Milestones Payment Schedule The SOW provides for the payment schedule by linking the milestones to the relevant delivery or task that is required to be completed. The milestone is linked to the deliverable or task. While the SOW specifies 'Deliverable' for each task, the payments of relevant Milestones are not wholly dependent on the described 'Deliverables' alone. In fact, it is the overall success of the tasks along with successful production of 'Deliverables' that determines Milestone Payments from Entity Y to Company X. This is confirmed by a success criteria within the SOW. When Entity Y does not accept the successful completion of the underlying tasks as provided in the SOW, no Milestone Payments are made to Company X. Production of described 'Deliverables' does not necessarily mean it triggers payment from Entity Y. When the deliverables and the overall task completion are not accepted by Entity Y, Company X would need to redo the activities at their own expense. Described deliverables are tied to the underlying scientific requirements for each task. The activities of the SOW are linked. If one of the activities are not completed, Company X cannot move to the next phase. The failed activity would need to be redone or modified to progress to next phase. Risks Associated with Tasks Company X has provided a table indicating risks associated with each task along with comments on whether those activities will be claimable activity under R&D Tax Incentive.

Relevant legislative provisions: Section 355-210 of the Income Tax Assessment Act 1997 | Subsection 355-210(2) of the Income Tax Assessment Act 1997 | Section 355-405 of the Income Tax Assessment Act 1997 | Section 355-440 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: R&D activities conducted by Company X subject to an Agreement with Entity Y are conducted for Company X and not to a significant extent for Entity Y for the purpose of section 355-210 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 355-210 of the ITAA 1997 provides the conditions for activities to be recognised as R&D activities. In subsection 355-210(1) of the ITAA 1997, it includes: (1) An R&D activity covered by one or more of the following paragraphs is an activity to which this section applies: (a) the R&D activity is conducted for the R&D entity solely within Australia; ... (d) the R&D activity is: (i) conducted for the R&D entity solely outside Australia; and (ii) covered by a finding in force under paragraph 28C(1)(a) of the Industry Research and Development Act 1986 ; (e) the R&D activity consists of several parts, with: (i) some parts being conducted for the R&D entity solely within Australia; and (ii) the other parts being conducted for the R&D entity outside Australia while covered by a finding in force under paragraph 28C(1)(a) of the Industry Research and Development Act 1986 . Subsection 355-210(2) of the ITAA 1997 provides an exclusion to section 355-210 of the ITAA 1997. It states: "(2) However, an R&D activity is not an activity to which this section applies if the activity is conducted, to a significant extent, for one or more other entities not covered by any paragraph of subsection (1)." In explaining when expenditure on R&D will give rise to a notional deduction, paragraphs 3.52 to 3.55 of the Explanatory Memorandum to the Tax Laws Amendment (Research and Development) Bill 2010 (the EM) explain: 3.53 This retains a key rule from the existing law commonly known as the 'on own behalf' rule. This rule is intended to limit eligibility for a notional R&D deduction to where an R&D entity is the major benefactor from the expenditure it incurs on the R&D activities. In certain situations, the rule also prevents duplication of claims by different R&D entities. [Schedule 1, item 1, section 355-210] 3.54 Determining the major benefactor of expenditure on R&D activities involves examining the extent to which R&D activities are carried out for the R&D entity compared to the extent to which they are carried out for any other entity. This is tested by weighing up three key criteria, namely who: • 'effectively owns' the know-how, intellectual property or other similar results arising from the R&D entity's expenditure on the R&D activities; • has appropriate control over the conduct of the R&D activities; and • bears the financial burden of carrying out the R&D activities. In short, the question of whether an R&D activity is conducted for an R&D entity is a question of fact, determined by whether the activity is conducted in substance to provide the majority of knowledge benefits resulting from the activity, such as access to intellectual property, to this entity. 3.55 Whether an R&D entity has effective ownership involves reviewing all the circumstances surrounding the conduct of the relevant activities and the ownership and control of, and/or ability to utilise, the intellectual property or similar results obtained from the expenditure on the R&D activities. These three key criteria in paragraph 3.54 of the EM apply to the conditions in section 355-210. The first condition concerns whether, in a positive sense, the R&D activities in question have been conducted 'for' the R&D entity (paragraph 355-210(1)(a)). The second condition concerns whether, in a negative sense, those R&D activities have been conducted 'to a significant extent', 'for one or more other entities not covered by any paragraph of subsection (1)' (subsection 355-210(2)). Applying these key criteria from the EM to a particular case requires weighing them up against the relevant facts and circumstances of that case. Application to your circumstances Company X entered into the Agreement with Entity Y to support ongoing research and development of a new and novel product (the Product). Funding from Entity Y will support studies to develop the Product and scale-up manufacturing processes. The relevant activities are expected to take approximately xx months. Under section 355-210 of the ITAA 1997, eligible R&D activities must be conducted for the R&D entity solely within Australia, or if conducted partly or solely overseas, must be covered by a finding in force under paragraph 28C(1)(a) of the IRDA 1986. Further to this, under subsection 355-210(2) of the ITAA 1997, an eligible R&D activity conducted for an R&D entity cannot be conducted, to a significant extent, for one or more other entities. In your case, the activities conducted subject to the Agreement with Entity Y cannot be conducted, to a significant extent, for Entity Y for the activities to be eligible R&D activities conducted for Company X. For the relevant income years, Company X has been and will be conducting R&D activities as defined by section 355-20 of the ITAA 1997. The R&D activities that Company X has been and will be conducting subject to the Agreement with Entity Y are conducted partly in Australia and partly Overseas. For eligible R&D activities that Company X has been and will be conducting Overseas subject to the Agreement with Entity Y are covered by Overseas Finding Certificates issued by AusIndustry to Company X. For any activities conducted by Company X and subject to the Agreement with Entity Y that are not eligible R&D activities, Company X will not claim R&D Tax Incentive for those activities. For R&D activities conducted either partly or solely outside Australia, that are not covered by the Overseas Findings approved by AusIndustry, Company X will not claim R&D Tax Incentive against those activities. The Agreement between Company X and Entity Y includes the following articles: Further, Entity Y does not have any rights over the manufacture or underlying IP of the Product. Rather, through the Agreement with Company X, Entity Y can access the data. That is, Entity Y only has rights over the copyright in respect of the data produced in the trial and no other IP. Under paragraphs 3.52 to 3.55 of the EM, in determining the major benefactor of expenditure on R&D activities, the following criteria are examined: For Company X's circumstances, under the Agreement with Entity Y, it is satisfied that: Conclusion Company X will only claim R&D Tax incentive against the activities subject to the Agreement with Entity Y that are eligible R&D activities. For any R&D activities conducted either partly or solely outside Australia, subject to the Agreement with Entity Y, Company X will only claim R&D Tax Incentive against activities that are covered by Overseas Findings approved by AusIndustry. In relation to eligible R&D activities conducted by Company X subject to the Agreement with Entity Y, it is satisfied that Company X effectively owns the R&D activities, Company X has appropriate control over the conduct of those eligible R&D activities and Company X bears the financial burden on carrying out those eligible R&D activities. Therefore, it is satisfied that eligible R&D activities conducted by Company X subject to the Agreement with Entity Y are conducted for Company X and not to a significant extent for Entity Y for the purpose of section 355-210 of the ITAA 1997. | Summary: Section 355-405 of the ITAA 1997 'Expenditure not at risk' does not apply to expenditure incurred or that will be incurred by Company X on the underlying R&D activities conducted by Company X in delivering the services under the Agreement with Entity Y to deny the notional deductions for that expenditure. | Detailed Reasoning - Detailed reasoning: Section 355-405 of the ITAA 1997 prevents an R&D entity from a notional deduction for expenditure that is not 'at risk'. It provides: (1) An R&D entity cannot deduct expenditure under section 355-205 or 355-480 if: (b) when it incurs the expenditure, the R&D or its associate had received, or could reasonably be expected to receive, consideration: (i) as a direct or indirect result of the expenditure being incurred; and (ii) regardless of the results of the activities on which the expenditure is incurred; and (c) that consideration is equal to or greater than the expenditure. Note: Section 355-205 is about deductions for R&D expenditure. Section 355-480 is about deductions for earlier year associate R&D expenditure. (2) If: (a) when an R&D entity incurs expenditure, the R&D entity or its associate had received, or could reasonably be expected to receive, consideration: (i) as a direct or indirect result of the expenditure being incurred; and (ii) regardless of the results of the activities on which the expenditure is incurred; and (b) that consideration is less than the expenditure; the R&D entity cannot deduct under section 355-205 or 355-480 so much of the expenditure as is equal to the consideration. (3) for the purposes of paragraphs (1)(a) and (2)(a), have regard to: (a) anything that happened or existed before at the time the expenditure is incurred; and (b) anything that is likely to happen or exist after that time. (4) This section does not apply to expenditure incurred on *R&D activities covered by paragraph 355-210(1)(b) or (c). Note: Those paragraphs cover R&D activities conducted for foreign residents. Taxation Ruling TR 2021/5 Income tax: research and development tax offsets - the 'at risk' rule provides the Commissioner's view whenconsidering the tests for determining whether an R&D entity's expenditure is 'at risk' under section 355-405 of the ITAA 1997. It includes the following: | Detailed Reasoning - The 'at risk' rule: 4. Expenditure can be claimed for the R&D tax offset only when you can notionally deduct it under Division 355. The 'at risk' rule compares consideration with R&D expenditure and may deny or reduce the expenditure you can claim for the R&D tax offset. Expenditure that is not notionally deductible under Division 355 may otherwise be deductible or depreciable outside of Division 355. 5. The amount of consideration relevant to any denial or reduction in notional deduction is worked out as at the time you incurred the expenditure. It is the consideration that you, or an associate of yours, received or could reasonably be expected to receive: • as a direct or indirect result of expenditure being incurred (the nexus to expenditure test), and • regardless of the results of the activities on which you incur the expenditure (the regardless of results test). ... 8. The 'at risk' rule applies when you incur the expenditure that you seek to notionally deduct. If you incur expenditure at different points in time for the same R&D activity, you must apply the 'at risk' rule at each of those points in time. 9. When considering the application of the 'at risk' rule at the time you incur the expenditure, regard is to be had to anything that happened or existed before or at that time, and anything that is likely to happen or exist after that time. ... | Detailed Reasoning - Nexus to expenditure test: 23. If, at the time you incur expenditure on R&D activities, you or your associate have received or could reasonably be expected to receive consideration as a result of that expenditure being incurred, the 'at risk' rule may apply. 24. The natural construction of the term 'expenditure' in section 355-405, having regard to the broader statutory context within which the 'at risk' rule operates, is that it refers to expenditure incurred by an entity on R&D activities for which it seeks to claim a notional deduction under section 355-205 or 355-480 (R&D expenditure). Therefore, the consideration captured by the nexus to expenditure test is that amount of consideration which can objectively be concluded as being received or receivable as a direct or indirect result of having incurred that R&D expenditure. 25. The nexus to expenditure test is concerned with the actual expenditure that an R&D entity has in fact incurred, rather than other expenditures or courses of action which the R&D entity could have chosen. | Detailed Reasoning - Direct or indirect result: 26. Consideration is received 'as a direct or indirect result'of incurring R&D expenditure when it is a direct or indirect consequence, outcome or effect of incurring the expenditure. 27. The fact that consideration may also be received as a result of something other than the expenditure being incurred does not alter the conclusion that the consideration is received as a result of that expenditure being incurred. 28. Use of the indefinite article 'a' supports this view. Particularly in its application to indirect situations, the degree of connection required is less demanding than would be required by the phrase 'caused by'. 29. For the nexus to expenditure test to apply, you or your associate must have received, or have a reasonable expectation to receive, consideration at the time you incur the expenditure. For example, the 'at risk' rule does not apply to include consideration from a contract you had not reasonably expected to enter into at the time you incurred the expenditure, such as supplying an effective ownership interest in the results of past R&D activities for consideration (see Example 4 of this Ruling). 30. The fact that expenditure is incurred on R&D activities conducted in the course of providing something for which the consideration is received or expected does not, of itself, cause the nexus to expenditure test to be satisfied. The nexus to expenditure test is an objective enquiry as to whether the consideration is a result of the R&D expenditure. It is not an enquiry as to whether the R&D expenditure is incurred as a result of the consideration. The fact that the consideration might fund the expenditure does not of itself determine whether the consideration is as a result of that expenditure (see Example 5 of this Ruling). | Detailed Reasoning - Regardless of results test: 31. The 'at risk' rule applies only where you or your associate have received, or can reasonably be expected to receive, consideration regardless of the results of the activities on which you incurred the expenditure. This is referred to as the 'regardless of results' test. 32. The words 'regardless of' mean without regard to, without paying attention to, or irrespective of the results of the activities on which you incurred the expenditure. 33. Given the context of section 355-405 in Division 355, the reference to 'activities' is considered to be a reference to the R&D activities. It is not a reference to the commercial or contractual activities of the entity in any broader sense. 34. The 'results' are the outcomes of your R&D activities on which you incurred R&D expenditure, rather than the process that led to those outcomes. You or your associate can receive consideration regardless of the results, even if you are required to conduct the R&D activities in a particular way (see Examples 1 to 3 of this Ruling). 35. The regardless of results test is an objective one. It is a question of fact whether you or your associate have received, or could reasonably be expected to receive, consideration regardless of the results of the R&D activities on which you incurred R&D expenditure. From a practical perspective, it may be useful to ask: Disregarding the outcomes of the R&D activities (whatever those outcomes may or may not be), can it be objectively concluded that you or your associate have received or could reasonably be expected to receive consideration? 36. Examples of where consideration is received or could reasonably be expected to be received, regardless of the results, are where the consideration depends only on: • incurring the expenditure (see Examples 1 and 3 of this Ruling) • conducting the activities on which the expenditure is incurred (see Example 2 of this Ruling), or • supplying an effective ownership interest in the outcomes of the R&D activities whatever those outcomes may be (see Example 7 of this Ruling). 37. In contrast, consideration is not regardless of the results to the extent that you or your associates' receipt of that consideration can be affected, directly or indirectly, by the results of the R&D activities you incurred expenditure on (see Examples 6, 8 and 9 of this Ruling). Application to your circumstances The Agreement with Entity Y includes the following articles: ... The SOW specifies tasks to be completed and the Milestone Payment Schedule for the Agreement with Entity Y. The Milestone Payment Schedule within the SOW makes reference to specific underlying tasks that need to be completed before each relevant payment milestone is met, invoiced by Company X and ultimately paid by Entity Y. Company X is responsible for funding the conduct of the underlying activities. While the SOW specifies 'Deliverable' for each task, the payments of relevant Milestones are not wholly dependent on the described 'Deliverables' alone. In fact, it is the overall success of the tasks along with successful production of 'Deliverables' that determines Milestone Payments from Entity Y to Company X. When Entity Y does not accept the successful completion of the underlying tasks as provided in the SOW, no Milestone Payments are made to Company X. Production of described 'Deliverables' does not necessarily mean it triggers payment from Entity Y. When the deliverables and the overall task completion is not accepted by Entity Y, Company X would need to redo the activities. Described deliverables are tied to the underlying scientific requirements. The activities specified in the SOW are linked to one another. If one of the activities are not completed, Company X cannot move to the next phase. The failed activity would need to be redone or modified to progress to next phase. Company X bears the risk that the scientific requirements cannot be met. The reason why there are multiple milestones and activities in the SOW is to reduce the risk for Company X that if one or two activities cannot be completed or need to be modified, then Company X would only miss the payment in relation to those failed activities. The Agreement is designed in multiple steps due to the uncertainty of the activities. It is to reduce Company X's risk of not receiving payments. In applying the 'at risk' rule under section 355-405 of the ITAA 1997, the amount of consideration relevant to any denial or reduction in notional deduction is worked out as at the time Company X incurred the expenditure. It is the consideration that Company X, or an associate of Company X, received or could reasonably be expected to receive: The Agreement is entered by Company X and Entity Y. No other associate of Company X receives any consideration from the Agreement with Entity Y. If, at the time Company X incur expenditure on R&D activities, Company X has received or could reasonably be expected to receive consideration as a result of that expenditure being incurred, the 'at risk' rule may apply. In conducting eligible R&D activities subject to the Agreement with Entity Y, Company X has incurred and will be incurring expenditure. Under the Agreement, consideration has been received and may be received by Company X in the form of Milestone Payments as a direct or indirect result of expenditure being incurred by Company X. However, the 'at risk' rule applies only where Company X has received, or can reasonably be expected to receive, consideration regardless of results of the activities on which Company X incurred the expenditure. Milestone Payments under the Agreement with Entity Y are only paid to Company X upon successful completion of the underlying tasks as well as the acceptance by Entity Y. Production of described 'Deliverables' under the SOW does not warrant payment from Entity Y and Company X would need to redo the specified activities when the overall task completion is not accepted by Entity Y. Described deliverables are tied to the underlying scientific requirements. Further, the activities specified in the SOW are linked to one another, which means that any failed activity would need to be redone or modified to progress to next phase. Company X incurs expenditure on eligible R&D activities subject to the Agreement with Entity Y, in which, a successful completion and acceptance by Entity Y may result in Company X receiving compensation by way of Milestone Payments. However, the Milestone Payments specified under the SOW are not received, or cannot reasonably be expected to be received by Company X regardless of the results of the activities on which Company X incurs expenditure. For this reason, it cannot be said that Company X will receive consideration regardless of results. And as such the 'at risk' rule in section 355-405 will not apply. Conclusion In conducting eligible R&D activities subject to the Agreement with Entity Y, Company X has incurred and will be incurring expenditure. Under the Agreement with Entity Y, Company X has received and may receive consideration in the form of Milestone Payments as a direct or indirect result of expenditure being incurred by Company X. However, at the time of expenditure being incurred, under the Agreement with Entity Y, Company X cannot receive, or cannot reasonably be expected to receive, consideration in the form of Milestone Payments, regardless of the results of the underlying tasks specified in the SOW on which Company X incurred or will be incurring the expenditure. Therefore, section 355-405 of the ITAA 1997 'Expenditure not at risk' does not apply to expenditure incurred or will be incurred by Company X on the underlying R&D activities conducted by Company X in delivering the services under the Agreement with Entity Y to deny the notional deductions for that expenditure. | Summary: The funding received by Company X from Entity Y does not constitute an assessable R&D recoupment for the purposes of section 355-440 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 355-440 of the ITAA 1997 provides what constitutes R&D recoupments. It states: (1) The R&D entity has an amount under this section if: (c) the entity, or another entity mentioned in subsection (5), receives or become entitled to receive a recoupment from either of the following (otherwise than under the CRC program): (i) an Australian government agency; (ii) an STB (within the meaning of Division 1AB of Part III of the Income Tax Assessment Act 1936 ) ... The Agreement that Company X entered is between Company X and Entity Y, which is not an Australian government agency or an STB. Under the Agreement with Entity Y, Company X does not receive or become entitled to receive a recoupment from an Australian government agency or a body that is a State or Territory body as defined in Division 1 AB of Part III of the Income Tax Assessment Act 1936. The funding received by Company X from Entity Y does not constitute an assessable R&D recoupment for the purposes of section 355-440 of the ITAA 1997.

Company X is responsible for performance of work set forth in the Statement of Works (SOW). Company X shall provide all documentation required in accordance with the deliverables table set forth in the SOW; | unless Company X notifies Entity Y that Company X does not intend to retain title, Company X shall retain the entire right, title, and interest throughout the world; and | Company X shall retain the entire right, title, and interest throughout the world to all Data and Technical Information that will be delivered, furnished, or otherwise provided to Entity Y under the SOW. Entity Y shall maintain such Data and Technical Information in confidence and, except to the extent that any other rights to such Data and Technical Information are indicated in the SOW, Entity Y may use such Data and Technical Information in accordance with the clauses of the Agreement. | Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'. | Company X is responsible for performance of work set forth in the SOW. Company X shall provide all documentation required in accordance with the deliverables table set forth in the SOW; | who has appropriate control over the conduct of the R&D activities; and | who bears the financial burden on carrying out the R&D activities. | Company X effectively owns the know-how, intellectual property or other similar results arising from Company X's expenditure on the activities subject to the Agreement with Entity Y. This includes the right to Patent any invention. Entity Y only has rights over the copyright in respect of the data produced from the activities conducted by Company X subject to the Agreement with Entity Y and no other IPs are provided to Entity Y; | under the SOW, Company X retains appropriate control over the conduct of the activities under the agreement; and | Company X bears the financial burden on carrying out the activities subject to Entity Y. The milestone payments are paid to Company X by Entity Y only after the deliverables are accepted and the underlying tasks specified in the SOW are successfully completed