Spoor & Fisher Cautions: Its Not Open Season on Offshore IP Transfer Post Oilwell
Although the Supreme Court ruled in the Oilwell case that transferring IP offshore does not require Exchange Controls Regulations approval, local firms need to exercise caution when relying on this judgment.
It is unclear at this stage how the Treasury will respond to this judgment but quite apart from that there are tax implications on any offshore IP transaction that cannot be ignored.
“Exchange control law complicated offshore transactions relating to intellectual property for many years but the Supreme Court brought some clarity in its recent judgement on Oilwell,” says Chris Bull, partner and head of patent and technology commercial practice at IP law firm Spoor & Fisher. “The court ruled that the assignment of IP from a South African entity to a foreign one does not require approval in terms of the Exchange Control Regulations.”
But, cautions Bull, the Treasury must still make its response to the judgement clear and it has three primary options.
It could appeal the case at the Constitutional Court, it could try to argue other regulations, or it could enact new legislation or regulations.
“All three options are fraught with difficulty specifically because the judgement did not do away with payment of royalties when transferring IP, which is still subject to exchange control approval,” says Bull.
There are also tax implications that companies must heed.
Various forms of IP are included in the capital gains tax asset definition so transferring IP could be seen as disposal of an asset and therefore subject to 14% tax.
Assigning IP could also be seen as the recoupment of capital allowances and subject to 28% tax. Where IP is assigned for nominal value the assignment may be seen as a donation and therefore 20% taxable.
“We expect to see greater scrutiny of international IP transactions by SARS to mitigate abuse of opportunities,” concludes Bull.
Contact Spoor & Fisher at email@example.com or +27 12 676 1111