Cap on technology transfer fee, royalty to be scrapped

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New Delhi, Sep 5: To encourage industry to source better technology, tie up with the best global brands and collaborate on cutting-edge industrial research, the government plans to relax the import regulations.

Soon, there will be no quantitative restrictions on the pricing of technology transfers or valuation of brands in any foreign investment deal with an Indian company. Several international brands in the retail sector and high technology companies in the pharma and telecom sectors are exploring ways to tap the Indian markets. For them and their Indian partners, the current restrictions on valuations are a dampener. Under RBI’s automatic approval route, domestic partners of foreign companies can make payments of only up to 5% of domestic sales and 8% of exports as fees for importing technology.

In the case of technical know-how fees, RBI allows only a lump sum payment of $2 million under the automatic approval route. Higher payments will need case-by-case clearances. Similarly, if a firm allows just the use of its brand name or trademark without a technology transfer, the ceiling on payment of royalty is 2% of exports and 1% of domestic sales.

All these ceilings are up for review, and would be done away with. “This is in keeping with economic liberalisation. We are making it easy for corporations to negotiate so that only commercial considerations get precedence,” a senior official of the concerned ministry told FE.

This means firms would not need the approval of Foreign Investment Promotion Board if they want to pay a higher royalty and technical know-how fees. This will cut down on uncertainty surrounding the “discretionary” approval, consultants said. Normally, such FIPB approval takes 8-10 weeks.

Vivek Gupta, partner, BMR Advisors, said: “If these restrictions go, it will be easier for manufacturing companies in various sectors to bring in the best R&D and high-technologies. It will also help high-margin companies that rely on sought after foreign brands for their business, including companies taking the franchisee route, consulting firms and advertising companies.”

Globally, such transactions are regulated through transfer pricing norms, experts said. These norms discourage firms from paying a much higher royalty or technical know-how fees, as they have to show fair value for such transactions. The government feels that instead of these archaic restrictions, transfer-pricing norms can do the check for it.