A premium, or a consideration in the nature of a premium, paid by the taxpayer. That is to say payments made in place of future running royalties.
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The royalty is paid for the right of use of any:
· Motion picture film or sound recording or advertising matter connected with such film, if the film, sound recording or advertisement is used for the production of income or if income is derived from it;
· Patent as defined by the Patents Act,
or any design as defined in the Designs Act,
or any trade mark as defined in the Trade Marks Act,
or any copyright as defined in the Copyright Act,
or any other property whose nature is similar, if any of the above-mentioned is used for the production of income or if any income comes from it; and
· The imparting of or the undertaking to impart knowledge directly or indirectly connected with the use of film, sound recording, advertisement, patent, design, trademark, copyright, etc., as defined above.
Having a mere 'now-how' licence DOESN'T initiate this section!
The Court has confirmed that a know-how licence on its own doesn't qualify for 'other property which is of a similar nature'.
Also, payments for intellectual property which are not registered/enforceable in South Africa aren't deductible.
The premium or consideration paid must be part of the income of the person to whom it's paid, unless it's paid under a written agreement formally and finally signed before the 10th
of April 1984 by every party to the agreement.
*So those were the three requirements for your upfront royalty payments to qualify for a deduction.
To find out more details regarding upfront royalty payments, go to chapter R09: Royalty Payments
in your Practical Tax Loose Leaf Service
Or you can click here
if you don't already have it.