An analysis of sections 11D(1)(A) and 11D(5)(B) of the income tax Act No. 58 of 1962 as amended

[摘要] ENGLISH ABSTRACT: In February 2007 section 11D was inserted into the Income Tax Act 58 of 1962 asamended. The aim of the section was to encourage private-sector investment inscientific or technological research and development (R&D). This was an indirectapproach by National Treasury to increase national scientific and technological R&Dexpenditure in order to complement government expenditure on the subject matter.Although section 11D provides generous income tax incentives, the interpretationthereof was found to be a hindrance in attaining the goal sought by NationalTreasury. This is due to the fact that this section demands a firm grasp of intellectualproperty (IP) law, principles of tax, and technology in general. This is clearly shownby the lapse in time (i.e. three years) between the passing of section 11D into lawand the release of the South African Revenue Services' (SARS) final interpretation ofsection 11D, i.e. Interpretation Note 50.The release of Interpretation Note 50 in August 2009 sparked wide-spreadcontroversy among many a patent attorneys and tax consultants. The interpretationof the section by SARS was found by many to be so draconian that it destroyed theincentive entirely.The objective of this study is to provide greater clarity on the areas of section 11Dwhich have been found to be onerous to taxpayers. Hence the meaning of 'newand 'non-obvious in the context of a discovery of information as eligible R&Dactivity1 was examined. Hereafter the ambit of the exclusion of expenditure on'management or internal business process2 from eligibility for the incentive in thecontext of computer program development was examined.It was established that the meaning of 'novel and 'non-obvious as construed by IPjurisprudence could mutatis mutandis be adopted for purposes of interpreting section11D(1) of the Income Tax Act. Therefore, information would be regarded as 'new ifit did not form part of the state of the art immediately prior to the date of its discovery. The state of the art was found to comprise all matter which had been made availableto the public (both in the Republic and elsewhere) by written or oral description, byuse or in any other way. Information would also be regarded as non-obvious if anordinary person, skilled in the art, faced with the same problem, would not haveeasily solved the problem presented to him by having sole reliance on hisintelligence and what was regarded as common knowledge in the art at the time ofthe discovery.It was submitted that in construing the meaning of the 'management or internalbusiness process exclusion, the intention of the lawgiver should be sought andgiven effect to. The Explanatory Memorandum issued on the introduction of section11D states that the lawgiver's intention with the section was to ensure that SouthAfrica is not at a global disadvantage concerning R&D. The R&D tax legislation ofAustralia, the United Kingdom and Canada was therefore examined to establish theinternational bar set in this regard.SARS is of the view that the 'management or internal business process exclusionapplies to the development of any computer program (with the said application)irrespective of whether the program is developed for the purpose of in-house use,sale or licensing. However, it was found that such a restrictive interpretation wouldplace homebound computer development at a severe disadvantage when comparedwith the legislation of the above mentioned countries. In order to give effect to theintention of legislature, it was submitted that the exclusion provision should beconstrued to only include the development of computer programs for in-housemanagement or internal business process use. Computer programs developed forthe said application, but for the purpose of being sold or licensed to an unrelatedthird party, should still be eligible for the R&D tax incentive.

[发布机构] Stellenbosch University