July 19th, 2021
In the May federal budget, the Australian Government announced that it will introduce a patent box for eligible income associated with new patents in the medical and biotechnology sectors. The patent box will apply to companies for income years commencing on or after 1 July 2022, and for new Australian patents since budget night.
The aim of such a policy is to encourage companies to base their medical and biotechnology R&D activity in Australia and to retain associated patent profits in Australia.
The system then provides a concessional rate of taxation on profits related to the underlying technology.
The government has recently released a discussion paper inviting comments on the proposed system.
Swanson Reed commends the government intent of the policy, however we note 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 development;
- 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 tax 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 derive limited benefit from a patent box in the near term.
If a system could be developed to manage these challenges, whilst complementing a stable R&D tax incentive, we would fully support it.