In November 2005 it was announced that a landmark judgement had been delivered by a court in Cape Town disallowing the royalty payments made by franchisees for the use by a South African company of certain trademarks. The court ruled that the royalties was expenditure similar to that incurred in setting up a new business and were capital in nature and therefore not deductible for tax purposes.

In March 2006, Daniel Erasmus did a presentation for FASA (Franchise Association of South Africa) on this landmark judgement. Click here to download a copy of that presentation.

Yesterday, the Supreme Court of Appeal decided, on the facts before it, that the lower court judgement was wrong and that the taxpayer could deduct its royalty payments.

This case impacts on those who pay royalties and franchise fees. To discuss this judgement with Daniel, email him at daniel@danielerasmus.co.za