Roll‐up international licences

It appears to have become common practice to combine a licence, provision of technical services agreement, and continued R&D services agreement into a single agreement and call the composite agreement a "licence". In principle, this is not necessarily incorrect, but then one must be careful to apportion the "royalty" payments between the three categories.

For practical reasons, one may be tempted to combine all the above provisions into one agreement. For instance, cancellation of the licence would typically require automatic cancellation of the other provisions. But from SARS’ perspective, the motivation may appear more insidious.

SARS' sensitivity is understandable when the provisions are analysed independently:


Provision of technical services

R&D expenditure

The onus of proving the apportionment of expenditure between the three provisions rests on the taxpayer. Consequently, composite licence agreements should be drafted to distinguish clearly between the considerations payable in respect of each of the above categories.

(Updated 2007)

Articles: Taxation