AusBiotech joins forces with Cook Medical and Deloitte on tax

Biotechnology industry experts are joining forces to support a ‘patent box’ tax incentive, like that recently introduced on the UK, to keep home-grown IP in Australia and keep the local medical manufacturing industry globally competitive.

The R&D Tax Incentive remains a top priority for the life sciences industry; however, the incentive to keep locally developed IP in Australia for manufacture phases out as the IP reaches commercialisation and becomes a manufactured product. This is the point at which Australian IP is most vulnerable to being sold overseas and the resulting community benefits - jobs and export dollars - going with it. IP is highly mobile and can be easily separated from the jurisdiction where it was developed and migrated to low-tax jurisdictions.

Industry is urging further tax reform to provide incentives for manufacturing innovative products to encourage long-term investment in home-grown technologies and support for export-oriented local production.

AusBiotech and Cook Medical met with senior bureaucrats of the new Coalition government last week to discuss the reforms, after the industry welcomed ‘The Coalition’s Policy to Boost the Competitiveness of Australian Manufacturing’ and its pledge to consider a ‘patent box’ tax incentive.

Dr Anna Lavelle said: “Australia needs to recognise the competition being provided by other countries which, due to their tax treatments, are attracting our IP after Australia has contributed to the costly and time-consuming R&D phase of innovation.

“In the last two decades, Australia has been steadily losing its manufacturing sector to Asia, while governments continue to prop up unsustainable traditional manufacturing with millions of public dollars. Meanwhile, innovative manufacturers with the jobs and economic support of the future, like biotechnology, are being left to ‘sink or swim’.”

Dr Lavelle said AusBiotech has welcomed Minister Ian Macfarlane back to the industry portfolio and looks forward to pursuing discussions regarding the patent box tax reform.

Analysis by Deloitte illustrates that nine nations (eight in Europe and China) have enacted ‘patent box’ regimes that provide incentives for firms to patent and produce - and stay. The US is also in the process of introducing a patent box incentive. In 2012, a bipartisan Bill with a 10% tax rate for qualifying IP income was introduced in the US House of Representatives. Some countries go beyond patents to R&D-based products and services.

The most recent version of a patent box incentive has been introduced in the UK in April 2013, providing a 10% tax rate on revenues from patents (in contrast to normal corporate tax rate of 26%).

Analysis conducted in the UK indicated that the introduction of a patent box incentive leads to significant shifts in patent holdings towards those countries operating favourable regimes and away from other countries. While the UK Government estimated that its patent box will have an annual cost of about ₤1bn, the increase in patent income, spillover benefits and other economic benefits should outweigh this cost. It was stated that adopting the patent box incentive in the UK would allow businesses to compete effectively in the global marketplace.

To illustrate the point, GlaxoSmithKline has transferred most of its global IP to the UK since April 2013, announcing $800m of new investment in the UK and the intention to build its first plant in 40 years, and is set to transfer 150 overseas research projects to the UK to take advantage of the newly introduced patent box.