It is common for companies to file PCT applications in the names of the inventors. The rationale being indirectly to qualify the company for the (up to) R36,000 rebate extended to natural persons making applications in certain designated countries. However, this is often done without proper regard to the potential tax consequences that may follow.
Consider a PCT application filed 12 months after the filing date of the provisional patent application. This application will continue in the name of the inventor until just before 30 months, which is the earlier deadline for filing national phase patent applications. At this stage, national phase countries have been selected and the filing costs have in general been agreed upon by the company and its patent attorney. But, before filing the national phase application, the PCT application is assigned from the inventor to the company and all (apart from the US) national phase applications continue in the name of the company.
Assuming that the company selects 7 national phase countries: the expected filing cost will amount to approximately R140,000; and the expected prosecution costs over the following two to three years will conservatively add up to approximately R200,000.
We should also conservatively add to this R50,000 for R&D expenditure and R50,000 previously incurred to draft and file the provisional and PCT applications. Accordingly, applying the cost approach (which should give the lowest limit in the range of values attributable to the intellectual property (IP)), the value of the IP as at the date of assignment back to the company could conservatively be estimated at R440,000.
Since the assignment of IP is a trigger for CGT purposes, the potential CGT liability for the individual when assigning the IP to the company may be R44,000 (i.e. 40% x 25% x R440,000). This liability is incurred even if the IP is assigned to the company for no value.
Similar CGT problems arise for parties that develop an invention through a joint venture (JV). Where the funding party wishes to terminate its role in the JV, the assignment of the IP back to the inventor could trigger substantial unexpected CGT liabilities.