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Cochlear calls for stability to R&D Tax Policy with release of FY19 Results

August 19th, 2019 stability to R&D Tax Policy

In comments published in The Australian coinciding with the release of their FY19 financial report, Cochlear has called on the Australian government to adapt policies to ensure Australia remains competitive in attracting global investment in R&D Activity.
 
CEO Dig Howitt noted specifically that the R&D Tax Incentive must be subject to a stable policy platform to address Australia’s declining R&D Expenditure when quantified as a proportion of GDP.
 
Dig Howitt had previously mentioned at the AFR Innovation Summit that the company had shifted some product development outside of Australia due to more favorable policy settings and that stable policy around R&D investment (including a mix of tax incentives and direct investment) was important for Australia to generate high paying jobs.
 
Cochlear have also published a dedicated Tax Contribution Report within its annual report package which includes the following points of note:
  • The company incurred $88.9M Income Tax Expense on profit during FY19 following the application of R&D Tax Incentives;
  • Cochlear derives the maximum possible benefit under the Australian Non-Refundable R&D Tax offset (a $8.5M Tax Saving) and incurs eligible R&D expenditure in excess of the legislated cap of $100M under Australia’s R&D Tax Incentive;
  • Cochlear reported $180M of R&D expenditure during FY19, some of which was spent in overseas jurisdictions;
  • Third-party sales are primarily overseas with 95% of revenue in FY19 generated outside Australia;
  • Intellectual property is held in Australia;
  • Global headquarters are located in Australia, alongside the majority of manufacturing and R&D Activities. Cochlear also conducts manufacturing and R&D in other locations such as Sweden, Belgium and the USA.
The views around the need for stability of Innovation Policy from one of Australia’s most successful technology companies should be noted by legislators and government when considering any reform to the R&D Tax Incentive, including a relaunch of reforms previously proposed. The bill to enact previously proposed reforms (Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018), did not pass through the Senate last year, and a Senate Economics Legislation Committee recommended that the bill should be deferred from consideration until further analysis of the bill’s impact is undertaken, particularly with respect to concerns around the proposed intensity threshold and refundable offset cap.  

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