Business Daily Media

Here's a scheme Labor should ditch in its bid to boost productivity. It's the 'patent box'

  • Written by Beth Webster, Director, Centre for Transformative Innovation, Swinburne University of Technology
Here's a scheme Labor should ditch in its bid to boost productivity. It's the 'patent box'

Australia’s new treasurer Jim Chalmers says his biggest priorities include boosting productivity and business investment[1].

If so, he would be wise not to follow in the footsteps of his predecessor Josh Frydenberg, who tried for more than a year to introduce Australia’s first so-called Patent Box[2] before the legislation lapsed ahead of the election without a vote.

First introduced in Ireland in the early 1970s, and adopted later in countries such as France, Spain, China and the United Kingdom, patent boxes are said to get their name from a box on the tax form that companies tick if they have income deriving from intellectual property[3], which is taxed at a discounted rate.

Former treasurer Josh Frydenberg, wanted to tax income from patents at a lower rate.

The theory is that if such income is taxed less, international corporations will do more of their research and development[4] in Australia.

When announced in the 2021 budget, the discount was to be limited to income from patents on medical and biological technologies, although (also before the bill became law) the 2022 budget announced plans to extend it[5] to agricultural and low emission technologies.

Income derived directly from patents in these fields was to be taxed at just 17%[6], instead of the prevailing company tax rate of 30%.

Doubts ahead of time

Doubts were expressed ahead of time. In 2015[7] the industry department’s office of the chief economist said while a patent box tax break would certainly increase the number of patent applications filed, most of the extra ones were “likely to be opportunistic” (filed on inventions that would have taken place without patents).

Any extra patent fees collected were unlikely to offset the tax lost.

And the advice had a broader point. Rewarding investors well after risky research had been undertaken was unlikely to do much to encourage such research.

Research and development tax credits, on the other hand, provide tax breaks at time the research is being funded, according to one Australian study, creating A$1.90[8] of research for each dollar of tax lost.

Read more: 'Patent boxes' are said to boost innovation. The evidence says they don't[9]

Supporters of the concept point to the Australian biotech company CSL Limited, which set up a new plant in Switzerland[10] rather than Australia in 2014 in part because Switzerland had a patent box and Australia did not[11].

Critics observe that income from patents is highly mobile[12], meaning it can be easily separated from real inventive activity moved across borders.

One study found 40% of multinational profits[13] had been moved from one location to another on the basis of tax rather than where the profits were made.

Read more: Artificial 'inventors' are pushing patent law to its limits[14]

Another study noted that businesses can get the tax breaks by acquiring[15] patents eligible for patent box treatment without doing the patentable research.

A review of the UK scheme published in November 2021 identified “abuse and boundary-pushing” and made a number of recommendations designed to refocus it on activity actually taking place[16] within the UK.

Tinkering, not transformation

Information Sheet, 2021 Budget[17] The scheme Frydenberg put forward had safeguards. It was to be limited to income derived from patents issued after budget night 2021, which meant (at least at first) it would be limited to income derived from new patents. Licensees of patents would not be eligible, only firms that held the patent themselves. And, where patents were filed overseas, they had to be owned in Australia, and the underlying research had to have occurred in Australia[18]. Labor has given no guarantee it will proceed with the scheme announced in the past two budgets and not yet legislated. There are reasons why it should not. Australia’s really big productivity gains, in the 1990s and early 2000s, had more to do with reforming or replacing lacklustre industries than with patents. Australia is on the cusp of yet another transformation, into a low-carbon energy producer and exporter. This is where our focus should be, rather than on tinkering with tax support for innovations that might take place regardless. References^ boosting productivity and business investment (ministers.treasury.gov.au)^ Patent Box (joshfrydenberg.com.au)^ intellectual property (www.aph.gov.au)^ research and development (parlinfo.aph.gov.au)^ extend it (www.managingip.com)^ 17% (treasury.gov.au)^ 2015 (www.industry.gov.au)^ A$1.90 (www.sciencedirect.com)^ 'Patent boxes' are said to boost innovation. The evidence says they don't (theconversation.com)^ Switzerland (www.gtlaw.com.au)^ Australia did not (cdn.theconversation.com)^ highly mobile (www.bruegel.org)^ 40% of multinational profits (www.nber.org)^ Artificial 'inventors' are pushing patent law to its limits (theconversation.com)^ acquiring (www.gtlaw.com.au)^ actually taking place (assets.publishing.service.gov.uk)^ Information Sheet, 2021 Budget (archive.budget.gov.au)^ occurred in Australia (www.aph.gov.au)Authors: Beth Webster, Director, Centre for Transformative Innovation, Swinburne University of Technology

Read more https://theconversation.com/heres-a-scheme-labor-should-ditch-in-its-bid-to-boost-productivity-its-the-patent-box-181464

Business Reports

Revolut launches educational courses on cryptocurrency in Australia to advance financial literacy

Revolut, the global financial superapp with more than 20 million customers worldwide, is taking another step forward towards its mission of bringing customers the best financial products and services to manage their money. ...

How to Ask for a Promotion or a Pay Rise

We’ve all been there – you’ve been waiting for the promotion that seems imminent, but then it never seems to come. It's hard to know how to ask for a promotion or a pay rise. Do you just go in and ask? Do you wait for yo...

Trump properties aren't the only ones to see wild valuations – putting a price on real estate isn't straightforward

40 Wall Street is one of the Trump Organization properties included in the lawsuit.Roy Rochlin/Getty ImagesOn the lower tip of Manhattan there is a prime piece of real estate, the price of which is somewhat up for debate. To the o...

Why shortages remain common 2½ years into the pandemic

A frequent sight during the pandemic.Diana Haronis/MomentShortages of basic goods still plague the U.S. economy – 2½ years after the pandemic’s onset turned global supply chains upside down.Want a new car? You m...

Liked and shared: How social media can elevate your customer experience

Don’t neglect this golden opportunity to connect with customers and win mind and market share. Is social media central to your business development strategy, or something you squeeze into your schedule, as and when? For man...

Optus | Commentary on governance, policy and procedure - Rackspace Technology

“This incident is all about governance, policy and procedure. You can have the best security solutions in place, but you are vulnerable to breaches without the right policies and procedures overlaid with effective governance...

Web Busters - Break into local search

WebBusters.com.au