Exchange control: The absence of the necessary exchange control approval (Oilwell V Protec case)
18 November 2011
Posted by: SAIT Technical
Case number 2010/295: Oilwell (Pty) Ltd v Protec International Ltd 2011 (4) SA 394 (SCA)]
Juta Tax Law
The absence of the necessary exchange control approval does not render a transaction null and void.
The facts of the Oilwell case were briefly that a South African resident disposed of a trademark to a non-resident without any approval. Oilwell, a South African company, relied on the decision in Couve and Another v Reddot International (Pty) Ltd and Another 2004 (6) SA 425 (W), in which it was argued that rights to patent applications were capital and that an assignment of such rights by a resident to a non-resident without approval of the South African Reserve Bank was invalid as it contravened regulation 10(1)(c).The court held that legislation that creates criminal and administrative penalties, as the Exchange Control Regulations do, should be interpreted restrictively.
The court held that:
· A trademark does not qualify as ‘capital’ or a ‘right to capital’ and as a result regulation 10(1)(c) should not be interpreted to include the assignment of a trade mark;
· A trademark, similar to other intellectual property rights, is territorial in nature and can as a result not be ‘exported’.
· Where Exchange Control approval was not obtained for the assignment of a trademark, the transaction is not ab initio null and void.
· It is theoretically possible to obtain exchange control approval ex post facto.
Editorial comment: Although the transaction is not null and void, it will still be regarded as disposal for the purposes of capital gains tax. Alternatively, depending on whether any deductions were previously claimed the trademark, a recoupment may also arise.
To access the case, click here