A. Introduction
Royalty payments to Group Entities for the use of Intangible property have always been in limelight. The fast paced growth of the intangible economy with the world royalty and licensing fee receipts recorded at 494 Billion USD in 2023 as compared to 191 Billion USD in 2010 as reported by the World Bank, has opened up the pandora’s box posing new and unique challenges in determination of the arm’s length price in relation to transactions involving intangibles. This is rightly so because of the special characteristics of intangibles which pose significant constraints in identifying proper comparables as they are seldom traded and are often bundled with other tangible transaction making it a lot more for difficult for identification and delineation. In this backdrop, this article delves into the regulatory history of royalty payments in India and the recent litigation trends with an intent to provide businesses an overview of the approaches to defend royalty.
B. Evolution of Indian regulatory environment governing royalty payments
Recognising the need for newer technology and to rationalise the manufacturing processes, the Government permitted the remittance of royalty for use of technologies/ trade name and brand within specified limits and subject to certain conditions under automatic approval route.
The below chart summarises the history of regulatory provisions governing the payment of royalty over the years.
History of Regulatory Provisions governing Royalty Payments