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FIPB nips Samsung plan to pay brand royalty

Ambarish Mukherjee

NEW DELHI, Aug. 16

THE plans of Samsung India Electronics Ltd (SIEL) to repatriate earnings from its Indian operations in the form of brand royalty to its Korean parent, Samsung Electronics Company Ltd, have been nipped by the Foreign Investment Promotion Board (FIPB).

The company wanted to pay brand royalty to the parent company, which is also its foreign collaborator, for products which the company is importing and selling in the Indian market under the Samsung brand name.

The company wanted to make this extra payment over and above the royalties it is currently paying.

SIEL has permission to pay royalty of 5 per cent on domestic sales and 8 per cent on exports, subject to taxes, for a period of seven years.

The company, in its application, has cited changes in rules under the automatic approval route which allow payment of royalty up to 2 per cent on exports and 1 per cent on domestic sales for use of brand name of the foreign collaborator and had sought pe rmission to do the same for products it is importing and selling in India.

And strangely, the Department of Industrial Policy and Promotion (DIPP), which is the administrative Ministry, has supported the Samsung proposal though these changed rules are not applicable for imported products.

It was only after the Secretariat for Industrial Assistance (SIA) raised strong objections saying that the trademark/ brandname royalty does not apply to the sale of imported products, that the FIPB took the firm stand to reject the Samsung proposal.

``The request of the company amounts to allowing it to pay royalty to its foreign partner without any time limit,'' the FIPB said and recommended rejection of the proposal to the Minister.

SIEL has approval to manufacture washing machines, air-conditioners, refrigerators, microwave ovens, colour television receivers, monitors, other sound reproducing apparatus and various types of cassettes and still cameras.

The company has set up manufacturing facilities for colour televisions and microwaves. However, some of the top end

washing machines, air-conditioners, DVD/VCD and refrigerator models are being imported.

The Korean company operates in India through two subsidiaries, namely Samsung India Electronics Ltd (SIEL) and Samsung Electronics India Information and Telecommunication Ltd (SEIIT). SIEL has a paid-up capital of Rs 100 crore of which 74 per cent is hel d by the parent company while SEIIT is a 100 per cent subsidiary. SEIIT has recently set up a base for the manufacture of PC monitors.

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