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There is no universal definition of 'franchising' and there are several different forms of doing business which may fall under this broad heading and have some characteristics in common. One of the most common is business format franchising which is an arrangement under which a person (the franchisee) is permitted to carry on a business under the trade name of, and using methods and an operating system developed by another (the franchisor) in return for fees.

Franchising is not a tax concept and, in the absence of statutory provisions, it is necessary to examine each franchise contract and to consider the nature of receipts and payments in accordance with the basic principles of tax law. One of these principles is that the nature of a payment may vary as between payer and payee. This often leads to asymmetry of tax treatment. The fact that a payment is a revenue receipt for the franchisor does not necessarily make it a revenue expense of the franchisee. Nor will it necessarily assist the franchisee that a particular tax treatment has been given