Exchange Control, Transfer Pricing and Intellectual Property in Africa

We write regularly about exchange control regulations impacting transactions and the use of intellectual property in South Africa. Few people are aware that most countries in Africa have exchange control regulations that impact intellectual property owners making use of their intellectual property across Africa.

A typical example of this is in Nigeria where payment of licensing fees and royalties on intellectual property is not permitted in circumstances where the intellectual property owner also owns more than 75% of the shares in the Nigerian company making the payment. In addition, licensing contracts have to be approved by The National Office for Technology Acquisition and Promotion before any payment of licensing fees and royalties can be made. Many companies are under the mistaken impression that this can easily be avoided by not requiring their operations in Africa to make payment for the use of the intellectual property rights which in turn avoids the need for a licensing agreement. The fallacy in this is that transfer pricing requirements often require that a licensing agreement is in place setting out defined royalties and licensing fees.

Similar rules apply in many African countries with the notable exception of Botswana, Egypt, Kenya, Mauritius, Rwanda, Uganda and Zambia. For the rest exchange control issues always need to be considered when one is making use of intellectual property in Africa.

Quite apart from exchange control issues, transfer pricing is always an issue relevant to the use of intellectual property in Africa. This issue is often overlooked where companies allow subsidiaries to make use of their brands or technology without the appropriate transfer pricing arrangements being put in place.

The consequences of violating exchange control regulations are serious. In many African countries it is a criminal offence carrying penalties. In our experience we have found most companies have not set in place adequate agreements and payment mechanisms regulating their use of their intellectual property across Africa.

Should you require any further information in this regard please contact Spoor & Fisher at info@spoor.com or 012 676 1111.)

Date published: 2010/10/18
Author: Spoor & Fisher

Tags: exchange control transfer pricing ip