Technology, brand transfer royalty put on automatic route

NEW DELHI: Indian companies paying royalty to foreign firms for technology transfer, use of brand name or trademark will no longer require government approval. This is expected to facilitate greater investment and transfer of technology to India.

In a statement issued on Thursday, the department of Industrial Policy and promotion (DIPP) said payments for technology transfer have been put under the automatic route.

However, these payments will be subject to Foreign Exchange Management (Current Account Transactions) Rules.
The relaxation follows a government’s decision to this effect in early November. At present, automatic approval was permitted only for foreign technology transfer involving payment of lump-sum fee of US $ 2 million and royalty of 5% on domestic sales and 8% on exports.

In cases where there is no technology transfer involved, royalty up to 2% for exports and 1% for domestic sales is allowed under automatic route on use of trademarks and brand names of the foreign collaborator.
Above these limits, the proposals were screened by an inter-ministerial body called Project Approval Board (PAB), chaired by DIPP secretary.

Companies will no longer have to bother about such payments, allowing them to attract greater investments. Royalty and technology transfer payments are often associated with purchase of machinery, components, raw materials and intermediates. A free regime will allow better sourcing and limits on payments will not become a constraint.

A suitable post-reporting system for technology transfer/collaborations and use of trade mark/ brand name will be notified separately, DIPP said. This will also cover norms relating to the FEMA rules that have to be complied with by the companies sourcing technology. Over 8,000 approvals have been granted for technology collaborations since 1991 to June 2009.