SCA rules royalties are tax deductible

The court upheld an appeal by BP SA against a judgment of the Cape town Income Tax Special Court in a case involving the company’s trademarks, colour schemes, designs and symbols which it has used since 1959. The trademarks and other indicia were owned by BP worldwide. Initially BP Southern Africa could use the indicia under a written agreement with BP free of any payment of royalties. However during 1997 BP SA entered into a trademark agreement with the parent company under which it could use trademarks and indicia if it paid royalties. BP SA claimed these payments under the Income Tax Act in the determination of its taxable income but SARS disallowed the deductions. The Appeal Court found the recurrent nature of the payment – which neither created nor preserved any asset in the hands of BP SA – was indistinguishable from recurrent rent paid for the use of another’s property. Full report in Business Report Judgment