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TECHNOLOGY TRANSFER FEES AND ROYALTY PAYMENTS
NO LONGER REQUIRE GOVERNMENT APPROVAL
(ALL UNDER AUTOMATIC ROUTE)

Prof. R. Balakrishnan, CS

1. Foreign Technology Transfer fees & Royalty payments

The Press Note 8 (2009 series) dated 16
th
December 2009 issued by the FC section of
Ministry of Commerce and Industry, Department of Industries Policy and Promotion of
Government of India further liberalized the foreign technology collaborations fees and the royalty
payments through automatic route and done away with the prior approval from the Government
beyond certain specified limit which was the case earlier.

Prior to the issue of this Press Note No. 8 (2009 series) prior approval is required to be
obtained from the Foreign Investment Promotion Board (FIPB) for a lump sum payment in
excess of US$ 2 million since one could remit amount not exceeding US$ 2 million only under
automatic route.

2. Liberalization after the Press Note release

The following is the comparative chart on the remittance of technology fees and the royalty
payments after and before issue of the Press Note 8 (2009 series) through the automatic route



Details
Before issue of Press
Note 8 (2009 series) Prior
to
16-12.2009
After issue of Press Note 8
(2009 series)
with effect from
16-12.2009
Lump sum payments Not exceeding US$ 2 million No limit now
Royalty payable 5% on domestic sales and
8 % on export
No restrictions - subject to
FEMA (Current Account
Transactions) Rules, 2000
Duration of royalty
payments
No restrictions No restrictions
Royalty limits are Net of taxes and are
calculated according to
standard conditions
Net of taxes and are
calculated according to
standard conditions

2.1 Method of Calculating Royalty Payments

The royalty will be calculated on the basis of the net ex-factory sale price of the product,
exclusive of excise duties, minus the cost of the standard bought-out components and the
landed cost of imported components, irrespective of the source of procurement, including
ocean freight, insurance, custom duties, etc. and this condition has been there all along and this
would continue to be there.

3. Foreign Direct Investment via automatic route

As per the current policy of the Government of India all items / activities for foreign direct
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Investment up to hundred percent falls under the automatic route except the (i) ones which are
requiring an industrial licence (ii) all proposals in which the foreign collaborator had a previous
venture/ tie up in India.(iii) All proposals relating to acquisition of existing shares in an existing
Indian Company by a foreign investor and (iv) All proposals falling outside notified sectoral
policy/ caps or under sectors in which foreign direct investment is not permitted.

4. Foreign Direct Investment requiring approval from FIPB

For all activities which are not covered under the automatic route, one has to obtain the
approval from the Foreign Investment Promotion Board (FIPB) and a composite approvals
involving foreign investment and foreign technical collaboration would be required.

5. Examination by FIPB while granting approval

The Foreign Investment Promotion Board (FIPB) examines the objections if any by the earlier
partner objectivity and Press Note 18 issued on this is very relevant which says that no
automatic route for foreign direct investment and / or technology collaboration for those who
have or had any previous joint venture / technology transfer / trade mark agreement in the same
or allied filed.

5.1. Determination of same filed or allied field

The same field would have to be determined with reference to four digit National Industrial
Classification Code of 1987 (NIC 1987 Code) and the allied filed would have to be determined
with reference to three digit National Industrial Classification Code of 1987 (NIC 1987 Code)

The only exception to this is the IT sector and International Financial Institutions.

6. Applicability of Takeover Code

Acquisition of more than specified equity stakes in an Indian listed company would entail public
offer under the Substantial Acquisition of Shares and Takeovers Regulation of India 1987 as
amended in 2002 known as Takeover Code.

Unless the completion of takeover code formalities is completed, the management of the Indian
company cannot be taken over by the collaborator under the collaboration agreement. The
takeover code also specifies the method of pricing of the shares in the takeover code
procedure.

4. Method of remittance of payments

The Reserve Bank of India has delegated the powers to Authorized Dealers (ADs) to make
payment of royalty under such agreements. The requirement of registration of the agreement
with the Regional Office of Reserve Bank of India has been done away with vide circular no.
RBI/2004/74 - A.P. (DIR Series) Circular No.76 dated 24 of February 2004.

The relevant portion of the content of the above referred circular is as given below:-
-----------------------------------------------------------------------------------------------------------
Foreign Exchange Management Act (FEMA), 1999
Current Account Transactions Liberalization
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Attention of Authorized Dealers (ADs) is invited to Annexure I of A.D. (M.A. Series)
Circular No.11 dated May 16, 2000 with regard to Rules relating to Current Account
Transactions.

(vi) Remittance of Royalty and Payment of
lump-sum fee

In terms of item No.14 of Schedule III, RBI's prior approval is required if the agreement
for technical collaboration has not been registered with RBI. Henceforth, ADs may allow
remittances for royalty and payment of lump-sum fee provided the payments are in conformity
with the norms as per item No.8 of Schedule II i.e. royalty does not exceed 5 per cent on local
sales and 8 per cent on exports and lump-sum payment does not exceed USD 2 million.
------------------------------------------------------------------------------------------------------------
5. The circular issued by the Government of India

The circular referred in the first paragraph is reproduced below for the benefit of the readers
liberalizing the royalty payments and the lump um fees which could be now made through
automatic route without the prior approval of the Government (i.e. FIPB) subject to Foreign
Exchange Management (Current Transactions) Rules of 2000.

GOVERNMENT OF INDIA
MINSITRY OF COMMERCE AND INDUSTRY
DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION
(FC SECTION)

PRESS NOTE NO 8 (2009 SERIES)

Subject: Liberalization of Foreign Technology Agreement Policy

The existing policy of Government of India on the payment of royalties under Foreign
Technology Collaboration provides for automatic approval of foreign technology transfers
involving payment of lump sum fee of US$ 2 million and payment of royalty of 5% on domestic
sales and 8% on exports. In addition, where there is no technology transfer is involved, royalty
up to 2% on exports and 1% on domestic sales is allowed under automatic route on use of
trade marks and brand names of the foreign collaborator. Separate norms are available for the
hotel sector vide Press Note 18 (1991 series) and Press Note 1 (1995 series). Technology
transfers involving payments above these limits required prior permission of the Government of
India (Project Approval Board, Department of Industrial Policy and Promotion).

2. The Government of India has reviewed the extant policy and it has been decided to
permit, with immediate effect, payments of royalty, lump sum fee for transfers of technology and
payment of use of trade mark / brand name on the automatic route i.e. without any approval of
the Government of India. All such payments will be subject to Foreign Exchange Management
(Current Account Transactions) Rules, 2000 as amended from time to time.
following restrictions on remittances by residents.

3. A suitable post-reporting system for technology transfer / collaborations and use of trade
mark / brand name will be notified by the Government separately.

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4. These guidelines issue in modification of provisions relating to foreign technology
proposals / approvals contained in paragraph 3 of Press Note 10 (1991), para 7 of Press Note
11 (1991), para 4 & 5 (a) of Press Note 12 ( 1991), para 2- 6 of Press Note 20 (1991), para 2
of Press Note 5 ( 1992), para 4 of Press Note 4 ( 1994), para 3 of Press Note 18 ( 1997), and
Paragraphs III and IV of Press Note 9 (2000).This guidelines will issue in supersessions of
provisions of Press Note 18 (1991), Press Note 4 (1992), Press Note 1 (1995), Press Note 4
(1996), Press Note 1 (2002) and Press Note 2 (2003).

Gopal Krishna
Joint Secretary to the Government of India
D/0 1 PP F No. 5(6)/2008 FC Dated 16.12.2009

Copy forwarded to:-
1. Press Information Officer, Press Information Bureau for giving wide publicity to above
Press Note.
2. BE section for uploading the Press Note on DIPPs website
3. PAB section, DIPP

PN_8_2009_Technology 2.doc


12. Conclusion

With the further liberalization on the technological lump sum fees with no restrictions and also
the payments of royalty through the automatic route subject to FEMA (Current Transactions)
Rules of 2000, would help in the further inflow of foreign direct investment in the country and
many of the administrative procedures and time involved in getting the approvals etc are now
stands curtailed with the revised liberalization policy of the Government. At the end one could
conclude that the Government is really moving forward in more and more liberalization and
make the things easier, simple and user friendly. The move would definitely attract continuous
flow of technology transfers to our country and we can expect to see more and more joint
ventures and collaborations in the near future.