Following a cacophony of dire warnings and lobbying over the past decade from the Australian biotechnology and medical sectors, and the sudden sharp focus of middle Australia on the critical importance of onshore manufacturing facilities such as those capable of mRNA vaccine production, the Federal Government has announced the introduction of a $206.4m patent box for Australian medical and biotechnology industries as part of the 2021-2022 Federal Budget handed down on 11 May 2021.
Named quite literally after a tick box historically present on income tax forms, a patent box provides tax incentives designed to encourage companies to commercialise and manufacture patented technology locally. From 1 July 2022, Australia’s proposed patent box is slated to tax income derived from eligible patents at a concessional corporate tax rate of 17%, rather than the standard corporate tax rate of 30%, or 25% for small and medium enterprises (SMEs).
While the specifics are yet to be established, the patent box is proposed to apply to income derived from granted Australian patents in the medical and biotechnology sectors filed after the budget announcement (ie, after 11 May 2021), providing that at least a portion of the research and development (R&D) of the technology occurred in Australia. The following example was provided with the Federal budget papers: A company selling a patented product makes $175 million in net income directly attributable to the patent. If 80% of the R&D associated with the patented product occurred in Australia, then 80% of the income (ie, $140 million) would enjoy the concessional 17% tax rate.
The measure is intended to incentivise Australian companies to invest in and perform their R&D, commercialisation and manufacturing of patented technologies onshore. It has been warmly received by the Australian biotechnology sector with Lorraine Chiroiu, CEO of AusBiotech, stating that the organization whole-heartedly commends the initiative: “This tax incentive will address the gap that leaves our IP vulnerable, retain home-grown IP, and support Australian innovators and manufacturers. It will make the commercialisation of IP and manufacturing in Australia more genuinely viable for businesses.”
Cochlear’s CEO, Dig Howitt, has similarly commented: “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.”
CSL CEO Dr Andrew Nash concurs, stating, “CSL welcomes the introduction of a patent box which will help decrease the flow of intellectual property from local medical research going overseas. It will drive the growth of advanced manufacturing jobs, capital intensive investment and sovereign capacity in medical technology and biotechnology manufacturing.”
A number of countries already have patent box regimes, including the UK, Belgium, Spain, France, the Netherlands, Luxembourg, Switzerland, and China. Australia’s patent box is set to follow the Organisation for Economic Co-operation and Development (OECD)’s guidance on patent boxes to meet internationally accepted standards.
The Government has indicated that it will consult with industry on the design of the patent box and explore whether the regime should be extended to include clean energy patents. Lobbying from that sector is already well underway.
On a technical note, several years typically elapse between patent filing and patent grant. Accordingly, it could be some three or four years before the patent box regime begins to provide significant benefit. Patent grant can, however, be brought forward by various means including requesting early national phase entry in Australia followed by expedited examination. If you require advice on this issue, Spruson & Ferguson would be happy to help.