Technical collaboration

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kirti kothari (Querist)

20 May 2011 Dear All,

I have a query.

my client has a Technical collaboration agreement with a Japan based company for which the client has taken FIBP approval for payment of higher royalty as prescribed in the act.

Client company decided to pay 10% royalty to the collaborator, but due to insufficient profits it couldn't pay any royalty to them till date.

My question is:
1. Is there any penalty for non payment of Royalty; and
2. If the client company wants to reduce the Royalty to 7%, can it do so and how.

Pls provide your valuable suggestion.

Regards,
Kirti

CA. Anuj Gupta

CA. Anuj Gupta (Expert)

21 May 2011 There is no penalty under any Act for non payment of royalty however the technical collaborator i.e. Japanese party can have certain issues in the same.

Previously the rate of royalty was fixed under FEMA, but m=now the same has been freed and hence the lower rate can be paid by agreeing into revised agreement with Japanese company.

Kindly also keep in mind the Transfer pricing implications in payment of royalty to foreign co.

Anuj
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