Australia may have been better prepared to deal with the COVID-19 crisis if the federal government implemented an “IP Box” tax incentive scheme that encouraged biotech manufacturers to base much of their operations here, a top intellectual property lawyer says.
Kylie Diwell, a director of the Medical Research Commercialisation Fund and partner at Minter Ellison, said many pharmaceutical companies elect to hold intellectual property (IP) assets and manufacture offshore because of favourable tax incentives, a disadvantage for Australia as it sought to address the shortage of coronavirus vaccines that emerged in April.
“I wouldn’t say that [the lack of an ‘IP Box’ system] is the sole reason we were in the situation we were,” she said.
“But I would say the implementation of a patent or ‘IP Box’ regime would have increased the number of companies staging and manufacturing in Australia, increasing our preparedness to respond to crisis.”
The Medical Research Commercialisation Fund has about $700 million of funds and is managed as part of the Brandon Capital Partners stable of specialist life science funds.
Ms Diwell’s solution – the ‘IP Box’ – would protect a portion of profits derived from intellectual property from tax as long as the IP is held and commercialised in Australia. Ms Diwell said it would lead to more biotech companies, in particular, setting up shop in Australia to develop pharmaceutical drugs.
“There are direct and indirect benefits. Having local access to lifesaving technologies that are being manufactured here on the ground in Australia and not being reliant on imports, is a general benefit for all,” she says, in a reference to the need to import some coronavirus vaccines from overseas.
It is an idea that has been floated several times in recent years bit failed to gain traction with the government because of fears the tax breaks could be exploited by opportunistic business people with no genuine interest in creating world leading IP.
The Australian Advanced Manufacturing Council recommending a 10 per cent tax rate for profits earned on locally generated intellectual property in 2015. In 2019, the local technology sector threw its weight behind the idea too.
Ms Diwell thought there was a greater recognition in the government now than before about the need for such a system, which she says would boost the nation’s already strong research capabilities.
“We have a good research ecosystem in Australia. But we want to expand that to make sure it includes manufacturing and commercialisation. These tax incentives will keep these companies in Australia, create more jobs in this space, encourage others to set up shop here and embark on research.”
She hoped that this increased recognition would result in a new IP Box regime being implemented in Tuesday’s federal budget, and said it would create jobs and industry growth.
“It seems to me this is just the next piece of the puzzle in terms of further supporting our capabilities,” Ms Diwell said.
However, to avoid the problems that plagued the previous research and development tax regimes that led to the Australian Tax Office trying to claw back $2.9 million in dubious claims, she believed their would have to be clear parameters set by the government to any IP Box arrangement.
“It will all come down to how clear the parameters are for what type of profits can take advantage of the profit box of favourable tax treatment,” she said.
“As long as we can set that up with appropriate parameters, I think the scheme will be a net positive.”
The Australian Financial Review
11 May, 2021