New tax relief could lure foreign biotech CEOs here

This week's federal budget contained a taxation measure designed to prime a 'brain siphon' that could help Australian biotechnology companies recruit experienced CEOs and other experienced senior executives from the US, Britain and Europe.

The treasurer, Peter Costello, announced that, from July 1, foreign executives and skilled workers will no longer be taxed on their earnings overseas while they are temporarily resident in Australia.

Currently, foreign executives working in Australia are taxed at Australian rates on overseas share earnings, investment property income or any other sources of income -- a major disincentive to work in Australia, when many are already paying income tax on these income sources in their home countries.

Dr Glen Begley, an Australian-born former senior scientist from the Walter and Eliza Hall Institute in Melbourne who now heads Amgen's Haematology and Oncology Division, told Australian Biotechnology News earlier this year that many Australian biotech companies would benefit from appointing experienced CEOs from the industry in the US.

Begley said the relativities of the US and Australian dollars, and the generally lower wages paid to senior industry executives in Australia, were already obstacles to recruit experienced executives, even without the disincentive of double taxation on income earned outside Australia.

He said Australian biotechs could actually benefit by recruiting from the ranks of CEOs and senior executives of failed biotech companies.

Many CEOs in the Australian biotech sector have had little experience in the specialised business of managing companies. Many were scientist-entrepreneurs whose strong emotional commitment to taking the molecules or products they had developed to the market, prevented them from making dispassionate, realistic business decisions.

Given the low probability of any lead compound making it all the way to the clinic, it might be better in many cases to terminate clinical trials. or even close down struggling companies, in the interests of shareholders.

Begley said the executives of companies that had failed in the highly competitive US biotechnology industry had acquired valuable insights into the reasons for their companies' failure -- including the costs of throwing good money after bad.

They also possessed a knowledge of the industry that could be invaluable to Australian companies looking to break into the world's most lucrative biotechnology market.

Jeremy Wurm of executive recruitment firm Brooker Consulting said that any attempt to make Australia a more attractive place for executives with international experiences was "a step in the right direction". He said he knew of instances where the previous tax regime had been the deciding factor in an overseas executive choosing not to accept a job in Australia. However, he believes "the most likely people to come to Australia from overseas are returning Australians".

The Howard government has tried twice before to remove the tax on foreign executives' overseas earnings, but the senate has blocked the legislation.

According to the budget papers, the changes will cost the government AUD$50 million in 2007-08, and $55 million in the following year.