Tax Implications of intellectual property transactions in South Africa

Intellectual property law is a category of property that includes intangible creations of the human intellect, and primarily encompasses copyrights, patents, designs, trade marks and know-how. The intention of the use of intellectual property is important to determine the correct tax treatment to be assigned in the calculation of taxable income in a particular year of assessment. The Income Tax Act 58 of 1962 (‘Income Tax Act’) is used, in this discussion, as a basis for determining the appropriate tax treatment of intellectual property transactions. Extensive focus is placed on discussing the tax incentives of royalties, premiums, acquisition of intellectual property and internally generated intellectual property. It should be noted that one should consider case law and the specific circumstances of each case, to determine whether the amount related to intellectual property will be deductible in terms of s 11(a). An overview of the tax implications for a franchisor and a franchisee is depicted when both parties enter into a franchise agreement. The taxation of image rights is specifically included in this discussion as companies, through their brands (i.e., trade marks) affiliate themselves with celebrities, sports professionals and influencers to drive their marketing strategy. A brief transfer pricing discussion regarding intellectual property is contained in the research report as it is imperative to determine whether an affected transaction has been entered into between connected persons which results in a tax benefit being derived.
A research report submitted in partial fulfilment of the requirements for the degree of Master of Commerce (Specialising in Taxation) to the Faculty of Commerce, Law and Management, School of Accountancy, University of the Witwatersrand, Johannesburg, 2023
Intellectual property, Income Tax Act 58 of 1962, Copyright, Trade marks, Transfer pricing, UCTD