Monday, November 07, 2016

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1 comment:

john busuttil said...

Hi .
Many royalty agreements are drawn up internationally without any reference or thought to Customs law and valuation.
I can site two major manufacturers in USA with manufacturing plants in South Africa as I consulted with both of them.
Case 1
There was 3 parties in 3 countries involved in my case
1. The supplier of the kit overseas.
2. The designer and patent holder of the vehicle in a different country.
3. The importer and manufacturer of the vehicle in S.A.
For ease of payment of the royalty and control factors for the royalty was paid on the number of kits supplied to the importer from the supplier .
The importer never imported a full kit from the supplier but only the components that could not be purchased elsewhere economically and the royalty agreement was that each kit will = 1 car manufactured unless it was never manufactured or scraped.
.To complicate the issue the royalty was added to the kit price separately on the invoice.
The sole reason for the royalty was for the right to manufacture a vehicle in SA .
The components were purchased from the supplier only when the price was competitive in other words it represented a market related price.
Another factor is that even if no kit was purchased the royalty would still be payable per vehicle manufactured in SA .
Detailed correlation of the facts supported by statistical evidence and documentary evidence was given.
Case 2.
This case by another consultant relied heavily on a poorly worded royalty agreement and they lost.
Conclusion
Agreements seldom take into consideration the impact of Customs legislation. In SA we have two identical transactions almost one royalty ruled dutiable and the other not .
.Keep well John Busuttil
email: busuttil@ mweb.co.za
cell 27829032828