South Africa: Does The Oilwell Judgment Create An "Open Season" On Offshore Intellectual Property Transactions In South Africa?

Last Updated: 28 June 2011
Article by Chris Bull and FJ Labuschagne

This article was originally published it the June 2011 edition of the Without Prejudice Magazine.

For a number of years South African exchange control law has complicated offshore transactions relating to intellectual property. The Supreme Court of Appeal has brought clarity to this issue in the recent judgment in the matter of Oilwell (Pty) Ltd v Protec International Ltd & Others ("Oilwell"). The Court ruled that the assignment of intellectual property from a South African resident (or entity) to a non-resident (or foreign entity) does not require approval in terms of regulation 10(1) (c) of the Exchange Control Regulations.


The practice of requiring exchange control approval for assignments of intellectual property (whether they be patents, trade marks, registered designs, copyright etc) was based on an interpretation of Regulation 10(1) (c) of the South African Exchange Control Regulations:

"10(1) (c)  No person shall, except with permission granted by the Treasury and in accordance with such conditions as the Treasury may impose

(a)...(b)...(c) enter into any transaction whereby capital or any right to capital is directly or indirectly exported from the Republic."

A High Court decision during 2004, Couve and another versus Reddot International (Pty) Limited and others 2004 (6) SA 425 (W) ("Couve") ruled that an assignment of patent rights from South African residents to foreign entities is subject to Regulation 10(1)(c). It is important to note that this judgment was confined to patent applications and did not address the broader issue of intellectual property in general.

Couve held that a patent application is "capital" within the meaning of Regulation 10(1)(c) of the Exchange Control Regulations and that as such an assignment of a patent application amounts to the export of capital and therefore requires exchange control approval from the Treasury.  The Couve judgment was subsequently interpreted by the tax and exchange control authorities in South Africa to apply to the assignment of all forms of intellectual property, not only patent rights. Any transaction where the necessary approval had not been obtained was considered to be null and void.

The Oilwell Case

On 18 March 2011 the Supreme Court of Appeal held in Oilwell v Protec (295/10) [2011] ZASCA 29 (18 March 2011) that trade marks do not constitute capital within the meaning of regulation 10(1)(c) of the Exchange Control Regulations,.  This judgment effectively overturns current Treasury and Reserve Bank policy.

The Oilwell case dealt with the company Oilwell seeking to reverse the assignment of a trade mark which had taken place during 1998, when the PROTEC trade mark was assigned to a foreign entity (Protec International Limited).  Oilwell, relying on the Couve judgment, built its case on the fact that no exchange control approval was sought for the underlying transaction, thereby arguably invalidating the assignment. 

Although, on the face of it, the Oilwell decision has provided much needed clarity on the exchange control issues surrounding the transfer of the ownership of intellectual property offshore, the situation is not necessarily as clear or simple as it seems.

In the Oilwell appeal Harms DP considered the meaning of the term "capital" within the context of the Currency and Exchanges Act 9 of 1933. After extensive analysis of this legislation and the context in which it was enacted he held that  the term "capital" was used in a financial sense, rather than having a broader economic or accounting meaning.  He also held that a restrictive interpretation should be applied to the term in view of the fact that legislation which creates criminal and administrative penalties requires such interpretation.  All of this lead to the Court's conclusion that the term "capital" as used in regulation 10 (1)(c) does not refer to intellectual property. Accordingly, foreign exchange approval is not required for offshore assignments of intellectual property.

IP transactions going forward

Although the Oilwell appeal has resolved many issues relating to the interpretation of regulation 10(1)(c) it is not necessarily the final salvo doing away with exchange control requirements on intellectual property  transactions. At the time of writing this article it is unclear what response the Treasury will take towards the judgment. If the Treasury were to decide that it wishes to preserve exchange control requirements on intellectual property transactions it could approach this in a number of ways:

  1. it could appeal the Oilwell case to the Constitutional Court, which appeal we understand would have to be lodged before 11 April 2011;
  2. it could try to argue that other regulations, other than regulation 10(1)(c) apply to intellectual property transactions; or
  3. it could enact new legislation or regulations dealing specifically with intellectual property transactions.

All of these options, as well as other options are all fraught with difficulties.

It is important to note that despite the Oilwell judgment resolving issues relating to exchange control approvals under regulation 10(1)(c) it did not do away with all exchange control requirements on intellectual property transactions. The payment of royalties from a South African resident company to non-resident for the use of intellectual property still requires exchange control approval. This is required under Regulation 3(1) (c) and was not dealt with in Oilwell. By way of example, in intra-group transactions where intellectual property has been transferred to a foreign group company, the South Africa company will require exchange control approval before any royalties can be paid to the foreign group company, the new owner of the intellectual property. Royalty or licence fee payments can generally not be avoided in intra-group transactions of this sort as transfer pricing rules for intra-group transactions have to be observed.

Caution is the watchword

For South African owners of intellectual property, Oilwell potentially means that they will be able to transfer their intellectual property to a foreign owner without the need to obtaining exchange control approval. Caution should be exercised before taking such a step though.

Tax cannot be ignored

Apart from ongoing exchange control challenges there is the potential pitfall of tax. Various forms of intellectual property are included in the definition of an asset for capital gains tax (CGT) purposes in the Income Tax Act. An assignment of intellectual property to a foreign entity will be a disposal of an asset for CGT purposes and any gains realised will be subject to CGT at an effective rate of 14%. If the intellectual property is assigned to a foreign entity that is also a connected party, the disposal will be deemed to have taken place at market value for CGT purposes. This requires a valuation to be conducted to determine this value. 

Quite apart from capital gains tax issues an assignment of intellectual property may also result in the recoupment of capital allowances, subject to income tax of 28%.

The common practice of assigning without value is something that will place the South African company in potential difficulties with the South African tax authorities. Where intellectual property is assigned for nominal value the assignment may be seen as a deemed donation and donations tax at 20% may be payable. We expect to see greater scrutiny of international intellectual property transactions by the South African tax authorities to mitigate any abuse of the opportunities created by the Oilwell judgment.


The Oilwell judgment potentially allows South African residents to now assign intellectual property to related parties offshore without exchange control approval. Caution needs to be exercised though in relying too prematurely on this judgment or seeing it as an "open season" on assignments of intellectual property out of South Africa.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions