All you should know about royalty fees

There are many ways for South
African Revenue Service (Sars)
to increase revenue.
One is to increase the customs
value of imported cargo – and
sections 41 and 67 of the
Customs & Excise Act 91 of
1964 (“the Act”) allow Customs
to do this by adding royalties and
licence fees, amongst other costs
and charges, to the value of the
imported goods.
South Africa is a signatory to
the WTO Agreement on Customs
Valuation (ACV) and as such
Article VII of the ACV has been
taken up into our legislation
as Sections 41 and 67 of the
Customs & Excise Act 91 of
1964 (“the Act”).
The two most important
things to remember are that the
royalty fee must relate to the
goods being valued, and must be
a condition of sale of the goods
being valued, to the extent that
the royalty fee is not already
included in the price actually
paid or payable.
For example, company A
manufactures branded caps
and sells the caps for export to
company B at a price exclusive
of the royalty fee. The caps are
sold for export on the condition
that company B pay a royalty fee
to a third party who holds
the copyright.
In this case the royalty
fee should be included in the
dutiable value as it relates to
the goods being valued and is a
condition of sale.
It is unfortunately not always
this cut and dried. For example,
what if company B only paid
royalty fees every three months?
The royalty fee is now no longer
related to the goods being valued,
but is still a condition of sale.
In this case it would be
advisable to contact Customs and
request a Value Determination.
One could also calculate the
royalty amount payable on
each imported consignment and
request this amount be included
in the invoice as a separate
amount.
In terms of Section 84 of the
Act, if a royalty fee is payable by
the importer and this information
is not reflected on the invoice,
Customs will deem this to be a
false declaration.
If it is found that an importer
has made a false declaration
to Customs, not only will that
importer be liable to a fine and
possible imprisonment, but
the goods will also be liable to
forfeiture.
If you have any queries
regarding royalties or value
determinations, please do not
hesitate to contact the
Customs @ Wylie team at
customs@wylie.co.za.