FBR’s Tax Year 2027 definition covers intellectual property, broadcasting rights, technical knowledge, equipment and related assistance.
ISLAMABAD: The Federal Board of Revenue (FBR) has defined the term “royalty” for Tax Year 2027 under the Income Tax Ordinance, 2001, covering payments linked to intellectual property, copyrights, technical expertise, commercial rights and the use of specialised equipment.
The FBR’s updated Income Tax Ordinance, 2001, incorporating amendments up to June 30, 2026, sets out the types of payments that fall within the statutory definition of royalty for income tax purposes.
What is royalty under the Income Tax Ordinance?
Under the Income Tax Ordinance, royalty means any amount paid or payable, however described or computed, whether periodically or as a lump sum, as consideration for specified rights, property, knowledge, equipment or assistance.
The definition covers payments made for the use or right to use a wide range of intellectual and commercial assets.
Patents, trademarks and other rights
Royalty includes consideration for the use of, or right to use, any patent, invention, design or model, secret formula or process, trademark or other similar property or right.
The provision therefore covers payments associated with the licensing or use of various forms of intellectual property.
Copyright and broadcasting rights
The definition also includes payments for the use of, or right to use, copyright in literary, artistic or scientific work.
This includes films or video tapes used in connection with television and tapes used in connection with radio broadcasting.
However, the definition specifically excludes consideration for the sale, distribution or exhibition of cinematograph films.
Satellite, cable and internet broadcasting
Royalty also covers payments for the receipt of, or right to receive, visual images or sounds, or both, transmitted through satellite, cable, optical fibre or similar technology.
The provision applies where such transmissions are connected with television, radio or internet broadcasting.
This brings certain technology-based broadcasting arrangements within the scope of the royalty definition.
Technical and commercial knowledge
Payments for the supply of technical, industrial, commercial or scientific knowledge, experience or skill are also covered.
The provision can therefore apply to transactions involving the transfer or provision of specialised knowledge and expertise.
Industrial, commercial and scientific equipment
The FBR’s definition further includes consideration for the use of, or right to use, industrial, commercial or scientific equipment.
Businesses making payments for the use of such equipment therefore need to assess whether those payments fall within the statutory definition of royalty.
Ancillary assistance also covered
The definition extends to the supply of assistance that is ancillary and subsidiary to, and provided as a means of enabling the application or enjoyment of, property or rights covered by the royalty provisions.
This applies to assistance connected with the types of intellectual property, rights, knowledge and equipment specified in the law.
Disposal of specified property and rights
Royalty also includes consideration for the disposal of any property or right referred to in the relevant provisions covering patents, inventions, designs, models, secret formulas, processes, trademarks, copyrights and specified equipment and rights.
The inclusion of disposal means the definition is not limited solely to recurring licensing or usage payments.
Implications for taxpayers
The broad definition means businesses and taxpayers involved in intellectual property licensing, broadcasting, technical services, specialised equipment, commercial know-how and related transactions should carefully assess the nature of their payments.
For Tax Year 2027, determining whether a payment falls within the statutory definition of royalty is important for applying the relevant provisions of the Income Tax Ordinance, 2001.