An End to Tax Deductions for Trade Marks?

Since our previous report on the proposed amendments in section 11(gA) on 27 September 1999 we have met with representatives of the South African Revenue Services and discussed this matter at some length.

All indications are that section 11(gA) is to be amended so as to discontinue the allowances which are available for the costs of acquiring trade marks. It is likely that the deductions that are currently allowed for patents, registered designs and copyrights will not be continued.

SARS have indicated to us that the proposed amendments are currently being considered by Parliament and are likely to be promulgated towards the end of this year or early next year. The effective date of the amendment may be retrospective.

We will continue to monitor the situation and report on developments.

September 1999

The South African Revenue Services ("SARS") are proposing amendments to section 11 of the Income Tax Act 58 of 1962 which will have the effect of discontinuing the deductions currently allowed for:

  1.  the cost of acquiring trade marks (section 11(gA)); and
  2.  the cost of creating, producing, registering and renewing trade marks.

The memorandum issued by SARS in support of the proposed amendments indicates that the motivation behind the amendments is the abuse of these sections of the Income Tax Act. It is widely known that in certain transactions relating to the acquisition of a business a disproportionate amount of the purchase price has been allocated to intellectual property to inflate the deductions allowed under section 11. A perception exists that this abuse is isolated to trade marks and has not yet spread to other forms of intellectual property such as patents and copyrights. The proposed amendments do not discontinue the deductions allowed for patents, registered designs and copyright.

On Friday, 17 September 1999 Spoor and Fisher made representations before the Finance Portfolio Committee of Parliament. We find it surprising that we were the only South African intellectual property law firm to make verbal representations on this issue as the proposed amendments detrimentally affect the tax status of all clients that own trade marks.

Our representations were well received and it seems unlikely that SARS will proceed with their proposed disallowance of deductions for the cost of creating, producing, registering and renewing trade marks.

On the issue of the proposed disallowance of deductions for the cost of acquiring trade marks (section 11(gA)) the Chairperson of the Finance Portfolio Committee has requested that SARS consult with our firm on this issue. We have submitted a proposal to SARS but are not optimistic that we will be able to maintain the tax deductions for the acquisition of trade marks. There is quite clearly abuse of this section and SARS are determined to stop this abuse. SARS has invited us to a meeting to discuss our view on the proposed amendments to Section 11.

Spoor & Fisher

Date published: 1999/11/01
Author: Spoor & Fisher

Tags: tax deductions trade marks sars