Business hampered by exchange control restrictions on IP

Following Webber Wentzel's commentary on the Exchange Control regulation of intellectual property (IP) in Brainstorm magazine in March 2016, the South African Reserve Bank (SARB) invited Webber Wentzel to provide insight on the public concerns and impact of the IP Exchange Control Regulations, with a view to exploring possible amendments.

Under the current Exchange Control Regulations, South African residents are restricted from (among other things) selling, assigning or licensing IP to foreign residents, and paying royalties to foreign residents, without prior approval from the SARB.

There is empirical evidence of the severe adverse effects of the current Exchange Control Regime as it applies to IP and "loop structure" prohibitions.

The key impacts include:

* Adding significant cost, complexity and uncertainty to cross-border transactions;
* Constraining commercial agility, business growth and global expansion;
* Stifling foreign investment and revenue opportunities;
* Discouraging foreign and local investment into South African research and development, SMEs and entrepreneurs; and
* An exodus of skills, talent and business interests offshore.

Given the severe impacts of Exchange Control, Webber Wentzel was prompted to lead a lobbying initiative and engaged widely across industry, which included the facilitation of a round table meeting between National Treasury, SARB and key industry stakeholders on 18 August 2016 (the round table).

Webber Wentzel is pleased to report the round table was very productive and positive, and National Treasury and the South African Reserve Bank demonstrated a keen willingness to engage on the issues and find a workable solution.

One of the key outcomes of the round table was that Webber Wentzel was requested by the SARB to prepare written recommendations report for submission to National Treasury. With input from SiMODiSA, Webber Wentzel has now submitted a report detailing critical concerns and priority proposed reforms. The indication from the regulators is that this will be considered by the SARB and National Treasury as soon as possible and, if approved, may be announced as early as October 2016.

Webber Wentzel is cautiously optimistic that its recommendations on priority reforms will be approved. If they are approved, the firm's hope is this will make South Africa a more attractive jurisdiction for foreign investment, innovation, local research and development, and entrepreneurship.

In the meantime, Webber Wentzel strongly recommends anyone entering into cross-border IP transactions or exploring international group restructuring tread carefully and obtain legal advice, particularly if they plan on implementing these arrangements in the short- to medium-term.