Domestic companies may not be allowed to pay hefty sums to their foreign partners for technology collaboration or brand name, sources told CNBC-Awaaz. The government is planning to cap royalty payments and increase the withholding tax, they said.
One of the major restriction will be a cap of upto 4 percent on royalty payments. The Ministry of Finance is giving the final touch to the cabinet proposal for the same, sources said.
As per the initial proposal, royalty payments in case technology transfer or technology collaboration royalty payment will be capped for the first four years, 4 percent of turnover, for the next three years, 3 percent of turnover, for the next three years, 2 percent of turnover and thereafter a percent of turnover. In the case of trademark, royalty payments cannot exceed a percent.
It is proposed that royalty payments in excess of the above will require prior approval of the government.
If a certain part of the royalty is invested in research and development, then the government may allow additional payouts.
Apart from capping, the government may increase the withholding tax on royalty payments.
According to another source, the Finance Ministry has consulted SEBI and RBI on this proposal, and now a final proposal likely to be sent to the cabinet soon.
(Edited by : Abhishek Jha)