· No change to the R&D Tax Incentive scheme (RDTI) but tax breaks for medical and biotech patents will commence in 2022 with the introduction of a patent box.
· The “patent box” will encourage businesses to keep their R&D activities in Australia, and to register IP here
· Income derived directly from new (granted) patents will be taxed at a concessional rate of 17 per cent
During Tuesday’s federal budget announcement, the Australian government pledged $206.4 million toward a patent box regime. While many stakeholders have lobbied the government for introduction of a “patent box” for several years, the concept itself is not entirely new. This program has existed in other countries including the United Kingdom (UK) for many years.
The first question that comes to mind is why is this scheme referred to as a “Patent Box”. The actual name: ‘patent box’, refers to a box that needs to be completed on the tax return to access a lower corporate tax rate on any profits derived from patented intellectual property (IP) assets, as shown below:
The tax benefits relating to the incoming Australian patent box do not relate to all sectors but will focus on medtech and biotech innovation and could eventually be expanded to include the clean energy sector. The program’s tight scope appears to be much more restrictive than most comparable programs globally. We believe that the government is adopting a rather cautious approach to the program since it would impact tax revenue. By restricting the program to the biotech and medtech sector, the government wants to test drive the program. Hopefully, if the program is successful, it would eventually be offered to all sectors.
Lack of Innovation Activity in Australia
IP Australia’s IP Report 2021 released last month highlighted medical technology, pharmaceuticals and biotechnology as being among the top 5 patent technology classes for Australian patent applications. These tech areas saw significant increase in patent filings in 2020 compared to 2019 – not surprising in the aftermath of the global pandemic. However, less than eight percent of Australian patent filings are attributed to resident Australian companies which indicates that a lot of the research activity and job creation related to a majority of the Australian patent filings occurs offshore. Many larger Australian corporations, over the years, have moved their research and business divisions offshore to take advantage of more favourable incentives offered by other jurisdictions. In the Global Innovation Index (GII), Australia ranks 23rd with countries such as South Korea, Singapore, Denmark, Finland, China, Norway, Ireland and Sweden being ranked well ahead of Australia.
The introduction of the patent box regime should encourage and incentivize Australian companies to maintain their operations onshore and help the Australian economy grow.
An incentive to patent
While a patent box would likely lead to an increase in the number of Australian patent applications, encouraging businesses to undertake their R&D in Australia will be a major benefit which hopefully help the economy by spurring investment and employment in high-technology industries. In order to make the most the Patent Box incentives, businesses would need to co-locate substantial activity like R&D or manufacturing in Australia to access the benefit. It is reasonable to expect that more research and innovation related jobs will be generated and retained in Australia and there will be a revenue generating activities.
An IP box or patent box has been floated several times in recent years but failed to gain traction with the Australian government due to issues encountered in other countries, including exploitation by opportunistic business people with no genuine interest in creating IP.
More than 20 other countries including France, China and most recently the UK (2013) have adopted patent box regimes with the aim of attracting IP income, encouraging innovation and accelerating commercialization.
Patent boxes vary from country to country and the Australian government will consult with industry before finalising the design of our patent box program, which will commence on 1 July 2022. We will keep you up to date as more details come to light.
In the meantime, If you need any assistance with patent protection please contact us on 07 3369 2226 or at email@example.com.