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CSL and Cochlear Call for Stability to R&D Tax Policy as Parliament Consider Proposed Reforms

February 24th, 2020

Over the past week, The Australian has featured articles quoting Australia’s two leading medical technology companies, CSL and Cochlear, calling on the Australian government to deliver consistent R&D Tax incentives after four years of policy review and uncertainty.

The article comes at a time when Parliament and the Senate are again considering an R&D Tax Reform bill, which was not enacted as law during a previous attempt following concerns raised by the Senate Economics Committee, largely due to complexity of the proposed intensity threshold.

Key points raised in the recent article include the following:

• Cochlear CEO, Dig Howitt, said Australia risked losing the highly paid jobs associated with advanced manufacturing and product innovation, unless the government delivered a more consistent policy;
• CSL CEO, Paul Perreault, was quoted as stating:
  • smaller, fledgling biotechs needed all the help they could get, particularly a consistent regulatory framework around research and development tax incentives;
  • the calculation of R&D intensity in the draft legislation, which is now before the Senate, was not optimal because it included cost of goods sold in the definition of total expenditure.

Global pharmaceutical giant, GlaxoSmithKline, was also quoted expressing concerns around the proposed intensity threshold, stating the definition could be a disincentive to manufacturing in Australia. “There is a high cost base involved with advanced manufacturing. As a result, GSK has higher levels of annual expenditure in Australia than other companies that also conduct R&D in Australia, without a manufacturing presence.”

It is also important to note that Cochlear and CSL may be one of the very few companies that may actually benefit from the proposed R&D Tax Reforms due to the proposed increase in the cap on R&D Expenditure from $100M to $150M, yet they still express concerns regarding the broader impact of the proposed changes on the framework for encouraging businesses to undertake Australian R&D Activity.

Swanson Reed calls on all sides of policy to commit to a stable R&D Tax Policy, and to particularly reconsider the unworkable proposals around the Intensity Threshold reform.