Critics confused over proposed innovation tax incentive


The proposed ‘Australian Innovation and Manufacturing’ (AIM) Incentive, backed by industry to support local manufacturing and exports based on local IP to remain in Australia, is being wrongly confused with outdated patent box designs.

An article in the Australian Financial Review this week (5 April 2016: ‘Biotech calls for action on growth’) has quoted a spokesperson for Minister Christopher Pyne, who quoted the OECD’s view on patent boxes before the “modified nexus” approach was adopted in 2014.

The AIM Incentive embraces the “modified nexus approach”, which means that there must be a direct nexus between the income receiving benefits and the activity contributing to that income.

This approach means only R&D conducted in Australia is eligible.

The spokesman said ‘the AIM proposal was similar to “patent box” proposals. A patent box is a tax benefit to businesses that own, trade or license patents.’

He went on to say that: “Patent boxes are often implemented as a tax competition policy without being linked to any real in-country activity. This is deemed as harmful tax erosion by the OECD. The cost of the program to the country is more than the returns from tax.”

Detractors who are suggesting the AIM Incentive constitutes harmful tax practice are not reading the AIM proposal correctly.

The comments echo a concerning report published by the Australian Department of Industry, Innovation and Science's Office of the Chief Economist, Patent Box Policies (November 2015, Gaéten de Rassenfosse).

AusBiotech wrote a letter of complaint in response to say that the report has many short-comings and making the argument for Australia not to implement a flawed design is obvious. No-one from industry is advocating for failure or a flawed structure, but instead is calling for an incentive to keep the benefits from portable IP (based on the R&D we have funded) in our country, to benefit the Australian community.

An analysis that sought to quantify our potential losses if we continue to do nothing to stem the flow of IP from Australia to other more competitive jurisdictions would have been a more valuable contribution to public discourse.

The report, which admits a “lack of economic models and empirical evidence prevent[s] quantitative estimates” has provided a limited and unhelpful assessment of patent box policies. The findings may undermine the policy without reasonable cause.

AusBiotech and others have been advocating for the Australian Innovation and Manufacturing (AIM) Incentive – a patent-box-style incentive – to keep Australian R&D-based IP, developed and supported here, delivering value as it reaches commercialisation. This would enable Australia to keep the associated jobs, manufacturing activity, exports and economic benefits in our country instead of losing them to more tax competitive jurisdictions.