The Federal government has proposed a “patent box” for Australia. Referring to a check box in a tax return form, the patent box will allow innovators in the healthcare space to get a tax rebate on revenue derived from commercialisation of patented technology.
By this proposal, the Federal government seeks to introduce a scheme that will encourage investment in Medtech and Biotech R&D in Australia.
How will the patent box achieve this?
It will offer a lower corporate tax rate of 17% on IP-derived income. This is a significant discount to the current corporate tax rate of 25% levied on SMEs and 30% on large businesses.
The scheme will apply to revenue such as royalty income or capital gains that will arise from sales or licensing of patented technologies.
Therefore, there will be a strong incentive to undertake R&D in Australia, as opposed to overseas.
It is also likely to lead to an increase in patent filings because patents can create licensing revenue opportunities which may be assessed according to the lower tax bracket under this scheme.
Businesses perform better in lower tax environments and so, generally speaking, this means the scheme will create further employment.
Increased spend in R&D correlates to the creation of jobs which in turn results in economic prosperity and an improved environment for further R&D and investment.
|Requirements to qualify for the “patent box” tax rebate|
Research & Development
|The research and development (R&D) underpinning the patent must be done in Australia|
|Patent||The patent must be applied from income years starting on or after 1 July 2022|
|The patent must be granted which were applied for after 11 May 2021|
The patent must be owned by an Australian company (or permanent establishment)
|Income||The income must be received by an Australian company (or permanent establishment)|
|The income must be derived directly from the patent such as sales of a product or process (income from manufacturing, branding and other attributes of a patented product or method will not be covered)|
It will be interesting to see how the scheme will be implemented for example in the case of complex licensing arrangements or where aspects of the R&D are conducted overseas or where the relationship between the R&D expenditure and the income generated from a patent is not clear.
Subtleties aside, logic suggests significant economic benefit will be derived from the patent box scheme.
Fine-tuning of the patent box in Australia will be guided by relevant industry bodies in healthcare, including AusBiotech and the Medical Technology Association of Australia and of course by the experiences of other countries. If successful, the patent box is eventually expected to extend to other sectors, such as cleantech.
Baxter IP continues to support many start-ups in the healthcare space with commercially focussed IP advice and we look forward to seeing the positive effects of the patent box in encouraging local R&D and commercialisation of new technologies.