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Newsflash: Decision on Tax on Royalties Overturned

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Newsflash: Decision on Tax on Royalties Overturned

Newsflash: Decision on Tax on Royalties Overturned

The Supreme Court of Appeal, in the matter of BP Southern Africa (Pty) Limited v The Commissioner for South African Revenue Services (Case No. 60/06), overturned the decision of the Cape Town Income Tax Special Court which held that royalties paid to franchisors weren’t tax deductible. The Court reasoned that the annual royalty payment procured for BPSA the use not ownership of the intellectual property of its parent company. The royalty payment was to all intents and purposes indistinguishable from recurrent rent paid for the use of another’s property. It added that the expenditure in issue was so closely linked to BP’s income-earning operations as to constitute revenue expenditure on respect of each of the tax years in question. The SCA accordingly declared the royalty payments to be deductible under section 11(a) of the Income Tax Act.

(Source: Newsletter of The South African Council of Shopping Centres)

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