November 16th, 2022
The previous Coalition Federal Government had first announced that it planned to introduce a patent box tax incentive for eligible income associated with new patents in the medical and biotechnology sectors in the May 2021 federal budget.
The legislation to enact this was introduced to the lower house in February 2022 (with a proposed start date of July 2022), but was not passed as law before the federal election.
There is now a new Labor Government following the federal election and in their first budget of October 2022 there was not specific mention of the measure being reintroduced. In addition, the new Labor Government had proposed multinational tax avoidance measures to restrict companies from diverting profits to other countries that may offer low tax jurisdictions or incentives such as IP domiciling via patent boxes.
It would appear that the previous Coalition Federal Government’s patent box tax incentive is now unlikely to be passed as law.
When the patent box tax incentive was announced in May 2021, Swanson Reed commended the intent of the policy. However, we noted a number of issues around such a system that may restrict its scope or impact, including:
- Distortions arising from offering the system only to a single industry;
- Issues around how to appropriately identify cost or activity associated with a patented concept, given that the patented element of a device may make up only a portion of the relevant activity related to its developed;
- The well-established arrangements for many Australian subsidiaries of multinational medical companies that have IP held offshore for R&D conducted in Australia. Currently projects under this structure can still access the R&D Incentive under provisions for R&D activities conducted for an associated foreign corporation;
- Companies in the medical and biotechnology sectors not already qualifying for the Refundable R&D Tax Offset, may have significant accumulated tax losses, meaning they may derived limited benefit from a patent box in the near term
Our view is that if a patent box tax incentive were to be forgone by Australian companies in exchange for a stable R&D Tax Incentive, that would be a much better outcome for industry at this present time.