Deductibility of royalties: a recent case that ruffled feathers [Discussion of the judgment of Waglay J in case number 11454 in the tax court]

Date
2006-01
Journal Title
Journal ISSN
Volume Title
Publisher
Juta Law Publishing
Abstract
INTRODUCTION: The Tax Court, sitting in Cape Town, recently had occasion to consider the deductibility of royalty payments.1 In general it may be said that royalties are payments for the use of another’s intellectual property, such as patents or trade marks. As such, royalty payments are made on a daily basis in the commercial world. It has always been widely accepted that royalty payments are deductible from income in terms of the general deduction formula2 and taxpayers have for years claimed this deduction without objection from the South African Revenue Service. In the case under discussion, the Commissioner for the South African Revenue Service (the ‘‘Commissioner’’) successfully challenged this accepted view regarding the deductibility of royalties, the court finding that the payments were of a capital nature and therefore not deductible.
Hierdie artikel bespreek die onlangse beslissing van die Kaapse Belastinghof waarin bevind is dat die betaling van 'n tantie` me vir die gebruik van 'n handelsmerk en ander simbole nie aftrekbaar is ten einde 'n belastingbetaler se belasbare inkomste te bereken nie. Die hof se beslissing dat hierdie tantième van 'n kapitale aard is word ontleed en gemeet aan die regsbeginsels neergelê deur die howe om te bepaal of 'n uitgawe van 'n kapitale aard is al dan nie. Die gevolgtrekking word gemaak dat die beslissing nie korrek is nie.
Description
CITATION: Du Plessis, I. 2006. Deductibility of royalties: A recent case that ruffled feathers [Discussion of the judgment of Waglay J. in case number 11454 in the tax court]. Stellenbosch Law Review = Stellenbosch Regstydskrif 17(1):190-201.
The original publication is available at https://journals.co.za/content/journal/ju_slr
Keywords
Tax deductions -- South Africa, Copyright -- Royalties -- Taxation
Citation
Du Plessis, I. 2006. Deductibility of royalties: A recent case that ruffled feathers [Discussion of the judgment of Waglay J. in case number 11454 in the tax court]. Stellenbosch Law Review = Stellenbosch Regstydskrif 17(1):190-201.