Identifier
Created
Classification
Origin
05PRETORIA2103
2005-05-27 14:13:00
UNCLASSIFIED
Embassy Pretoria
Cable title:  

REMISSION OF ROYALTIES OUTSIDE OF SOUTH AFRICA

Tags:  ETRD KIPR EFIN ECON SF 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS PRETORIA 002103 

SIPDIS

DEPT FOR AF/EPS; AF/S TCRAIG
USDOC FOR 4510/ITA/IEP/ANESA/OA/J DIEMOND
TREASURY FOR OWHYCHE-SHAW AND BRESNICK
DEPT PASS USPTO FOR MADLIN
DEPT PASS USTR FOR PCOLEMAN AND VESPINEL

E.O. 12958: N/A
TAGS: ETRD KIPR EFIN ECON SF
SUBJECT: REMISSION OF ROYALTIES OUTSIDE OF SOUTH AFRICA


UNCLAS PRETORIA 002103

SIPDIS

DEPT FOR AF/EPS; AF/S TCRAIG
USDOC FOR 4510/ITA/IEP/ANESA/OA/J DIEMOND
TREASURY FOR OWHYCHE-SHAW AND BRESNICK
DEPT PASS USPTO FOR MADLIN
DEPT PASS USTR FOR PCOLEMAN AND VESPINEL

E.O. 12958: N/A
TAGS: ETRD KIPR EFIN ECON SF
SUBJECT: REMISSION OF ROYALTIES OUTSIDE OF SOUTH AFRICA



1. Summary. The South African exchange control regulations
require that any remittance of money offshore that derives
from the payment of royalties must receive exchange control
approval from the South African Reserve Bank (SARB). The
Department of Trade and Industry (DTI) is responsible for
administering royalty payments connected with license
agreements. DTI generally approves royalties in the 4-6
percent range. End summary.


2. This cable provides information on the issue of the
remission of royalty payments outside of South Africa
gleaned from contacts with South African intellectual
property lawyers. The South African exchange control
regulations require that any remittance of money offshore
that derives from the payment of royalties must receive
exchange control approval from the South African Reserve
Bank (SARB). The Department of Trade and Industry (DTI) is
responsible for administering royalty payments connected
with license agreements. The local licensee is required to
complete a Form DTP001 and submit it to DTI with a copy of
the draft royalty agreement. The application for foreign
exchange approval is also made to SARB before the contract
is finalized and prior to remitting any funds offshore. DTI
applies certain norms and guidelines regarding royalties.
DTI may provide SARB with some indication of what the level
should be. A court case last year held an entire
transaction to be invalid because exchange control approval
had not been obtained.


3. One lawyer thought the amount of the royalty approved
for musical works, pharmaceuticals, and clothing was usually
in the range of 4-7 percent, unless the company can prove
with substantial evidence that a higher royalty payment is
warranted for specific types of goods, for example, by
citing the normal royalty rates approved in other countries.
Her experience was that the final percentage approved was
usually settled in the middle of the 4-7 percent range.
According to other lawyers, however, DTI has a range only up
to 6 percent, but the amount will depend on the agreement
and the usefulness of the technology licensed.


4. One attorney indicated that while there are no specific
regulatory constraints regarding the maximum royalty
payable, DTI, as part of its policy, identifies two
categories of products for the purposes of determining an
acceptable royalty rate. He indicated DTI currently allows
a maximum of 6 percent for intermediate capital goods to be
remitted and a maximum of 4 percent for consumer goods.
While the allowable amount is not cast in stone, it is
possible but not probable that DTI could be persuaded to
increase the royalty amount allowed. At the end of the day,
SARB would make the decision. The general view in DTI
appears to be that the total payment of any royalties
remitted offshore not exceed 6 percent on net ex-works sales
less the factory landed costs of any raw material/components
imported directly or indirectly from the licensor and value
added tax. One lawyer was pleased that his law firm was
able recently to persuade DTI to allow a royalty payment of
5 percent concerning a client's distribution of sport and
leisure footwear as well as authorization for a license to
transfer know-how from the licensor to the local licensee
for 5 percent of the ex-factory selling price.


5. In explaining the policy considerations driving DTI's
policy, one lawyer said that DTI, in its capacity as
administrator, tries to prevent people from paying
exorbitant royalties offshore and tries to make sure people
are not overpaying for intellectual property rights. In
practice, the lawyers have found DTI to apply these general
principles on royalties across the board without any
distinction between royalties remitted offshore to the
United States, the EU, Asia, or Africa.

FRAZER