Tax breaks tipped to trigger innovation boom

May 12, 2021

The country’s innovation giants say tax breaks for profits generated on local intellectual property will nurture high-value, local jobs and foster new companies, despite Australia still offering significantly weaker incentives than countries such as Britain and Singapore.

Australia joins 24 other countries with patent box schemes, which offer lower tax rates on profits generated from local intellectual property.

The introduction of a 17 per cent tax rate for locally developed biotechnology and medical innovations comes after a push from high-profile industry leaders such as Cochlear chief executive Dig Howitt, Planet Innovation CEO Stuart Elliot and Brandon Capital partner Chris Nave.

Mr Howitt said the initiative targeted the most valuable phase of the innovation life cycle – when a concept turns into something that can be manufactured and sold.

“Incentivising companies of all sizes to keep their intellectual property and manufacturing in Australia will generate substantial economic benefits through royalties, licence fees, tax revenues, supply chains, jobs and capital investment,” he said.

“This is the right initiative at the right time. We know Australia punches above its weight when it comes to medical and health research. This incentive will help Australia generate more globally successful medical products companies, delivering health and economic benefits for all Australians.”

A co-founder of diagnostics company SpeeDx, Alison Todd, leads the creation of new IP for her company as chief scientific officer.

To date, SpeeDx has had 85 patents granted (122 if you count separate European jurisdictions) and has another 57 pending.

The company has developed a diagnostics tool that lets laboratories identify many different bacteria and antibiotic-resistance targets at once. It enables doctors to specify if a patient has a certain disease, and also if the patient is resistant to certain antibiotics, and then what sort of antibiotics they would respond to best.

Dr Todd said the patent box had the potential to be “absolutely brilliant”, but it needed to ensure it recognised the lengthy timeline it takes for patent applications to be granted and then turned into revenue-generating products.

“The way it’s written at the minute appears to imply that it applies to applications from today, but with the scheme to start from July next year, but only for patents that have been granted,” she said.

“But if you lodge a patent today, you won’t have a patent granted by July 2022. With IP we’ve lodged over a year ago, it’s still several years off being granted and commercialised.”

As well as getting patents granted, she said the cost of maintaining them was also substantial and made up one of its largest expenses besides staff salaries.

Why biotech and medicine? Why not everything else? — Oliver Yates

If the government gets the detail of the scheme right, Dr Todd said it could go a long way to supporting SpeeDx.

“If a patent is granted really quickly, it might take two or three years in some jurisdictions, but then you need them to be granted all around the world [if you’re a global company].

“At least five years has been the average [for SpeeDx] to have a patent granted. Some come through quicker … but some can take 10 to 15 years.”

While the proposed patent box gives companies generating revenue from local IP a significant discount to the standard 30 per cent corporate tax rate, it is still substantially higher than countries such as France and Britain, which tax profits from IP at 10 per cent. Belgium offers rates as low as 5 per cent (an 85 per cent reduction on the net qualifying income) and Switzerland offers a reduction in net qualifying income of up to 90 per cent.

While Australia’s 17 per cent rate is higher than some nations offering an IP tax break, Brandon Capital’s Chris Nave said it would be enough to keep jobs and innovations onshore.

“It’s quite competitive,” Dr Nave said. “I think this is a really good and sensible start.

“I think it should support all innovation economies in Australia, not just biotech. One day the coal and iron ore will run out and Australia needs to use this period of time when we do have such strong income from those commodities to grow industries that are long-term and sustainable.”

CSL chief scientific officer Andrew Nash said keeping intellectual property within Australia had flow-through benefits to the economy.

“It will drive the growth of advanced manufacturing jobs, capital intensive investment and sovereign capacity in medical technology and biotechnology manufacturing,” Dr Nash said.

“It’s an important reform and will help to ensure that the Australia of the future can more easily turn good science into products, professions and local, advanced medical manufacturing capacity.”

Planet Innovation CEO Stuart Elliot said the best part about the patent box was that it was not a government handout.

“Instead, this is positive stimulation for the industry. It is going to drive investors to the doors of businesses that will benefit from this incentive, flooding more money into the innovation ecosystem,” he said.

“This is a critical first step and we believe it will have tremendously positive impact on our business. In the future, the government could look at making the incentive more competitive internationally by lowering it to bring it in line with the likes of the UK at 10 per cent.”

Why just healthcare?

With the legislation centred on the medical and biotech industries, many in fields such as clean energy and fintech believe the tax cuts should be extended to them.

Former CEO of the Clean Energy Finance Corporation, Oliver Yates, said it did not make sense for one area of innovation to be rewarded over others.

“It’s not so much about the clean energy sector, but there’s a whole series of areas where Australia has shown leading technology – automation, GPS, self-driving cars – the idea that it should limit this to one area rather than recognising innovation in all of its forms is just astounding,” he said.

“Why biotech and medicine? Why not everything else?

”I simply don’t understand it. It’s a good idea … at the moment everyone just puts their innovation in tax havens like the Cayman Islands and then that innovation moves offshore. But rewarding people coming up with globally innovative solutions in any industry should be recognised.”

Former Baker & McKenzie lawyer and a founding partner of climate change advisory and investment firm, Martijn Wilder, agreed, saying the “decarbonisation economy” needed measures like the patent box to encourage investment.

“There’s less appreciation that the decarbonisation economy is the second biggest investment opportunity of our lifetimes (next to healthcare),” he said. “There’s currently limited investment in research and development, so the problem is you don’t get the rapid changes in investment [from measures like this]. But anything you can do to encourage it is really important.”

The government has suggested the regime may be extended to clean energy.

Assembly Payments chief executive Tim Dickinson believed the fintech sector would also greatly benefit from a patent box.

“It’s fair enough that the government wants to strongly incentivise all medical and biotech innovation staying in Australia during a global pandemic. But it needs to think outside of the box,” he said.

“If the past 18 months have shown us anything, it’s how small the world truly is. Continued interactions through digital-first innovation will be key to our shared future, no matter how challenging.”

Even Dr Todd, who stands to benefit from the present scheme, urged the government to extend the patent box.

“Innovation is the most important thing to Australia going forward,” she said.

Cicada Innovations CEO Sally-Ann Williams implored government leaders to follow the lead of Britain and commit 2.4 per cent of gross domestic product to R&D public funding by 2027.

“Our goal should be to keep our valuable deep technology companies onshore, and so it’s critical that we use our national budget to make this economically viable,” she said.

The Australian Financial Review
Yolanda Redrup
12 May, 2021

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