Moving Your IP Offshore? Beware the Related-Party Trap
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For South African technology businesses, entrepreneurs and companies looking to expand internationally, moving intellectual property (IP) into an offshore structure can seem an obvious next step. Software, platforms, patents, trade marks and other IP can become highly valuable assets, and housing them offshore may be attractive for international expansion, investment or broader corporate structuring. But there is an important catch: South African exchange-control rules regard IP as capital, and capital cannot be moved offshore without regulatory approval.
In this edition of Business Law Focus, Sara-Jane Pluke, Head of Intellectual Property at Eversheds-Sutherland, explains to host Evan Pickworth that if the offshore entity IP is being moved into is in any way related to the SA business - same shareholders, common control, part of the same group - the deal is in related-party territory, and that's where the SARB gets genuinely strict.
“If the offshore entity you are moving IP into is in any way related to your SA business - same shareholders, common control, part of the same group - you are in related-party territory,” says Pluke. In practice, very few related-party IP transfers are approved.
Here's the regulator's concern in a nutshell - if a business sells IP offshore and then licenses it back to use in SA, they are effectively getting the asset out of the country while continuing to pay royalties on it from SA. That's revenue leaving the country twice over: once when the IP itself goes offshore and again every time a royalty payment follows it out.
The SARB regards this as “double-dipping,” and it's a hard no. Sale and lease-back arrangements are prohibited even between unrelated parties.
Importantly, Pluke also explains in the interview what can be done to achieve approval when there is no related party.
In this edition of Business Law Focus, Sara-Jane Pluke, Head of Intellectual Property at Eversheds-Sutherland, explains to host Evan Pickworth that if the offshore entity IP is being moved into is in any way related to the SA business - same shareholders, common control, part of the same group - the deal is in related-party territory, and that's where the SARB gets genuinely strict.
“If the offshore entity you are moving IP into is in any way related to your SA business - same shareholders, common control, part of the same group - you are in related-party territory,” says Pluke. In practice, very few related-party IP transfers are approved.
Here's the regulator's concern in a nutshell - if a business sells IP offshore and then licenses it back to use in SA, they are effectively getting the asset out of the country while continuing to pay royalties on it from SA. That's revenue leaving the country twice over: once when the IP itself goes offshore and again every time a royalty payment follows it out.
The SARB regards this as “double-dipping,” and it's a hard no. Sale and lease-back arrangements are prohibited even between unrelated parties.
Importantly, Pluke also explains in the interview what can be done to achieve approval when there is no related party.
