May 18th, 2021

Australian Federal Government patent box scheme: boom or bust?

The federal government unveiled a new limited $206 million patent box scheme incentivising medical and biotech companies to pay a concessional corporate tax rate if they register new patents in Australia from July 1, 2022, onwards.

This scheme will offer tax breaks for medical and biotech innovations to boost commercialisation and retain intellectual property (IP) in Australia. The offered rate in this scheme will be a concessional tax rate of 17 per cent. This compares to the corporate tax rate of 30 per cent for large companies and 25 per cent for smaller companies.

The patent box scheme has been introduced, with some variation, in twenty other countries with mixed results. While most countries have introduced a patent box style regime see a short term downward impact on tax revenue there is often an expected reversal of trends after businesses reposition strategic direction for the longer term.

Since the release of the Federal Budget on May 12, there has been evident excitement for the patent box scheme in Australia. Australian biotech and medical industries are known for their world-class innovation, however, regarding the commercialisation and incentivising of companies to do research and development (R&D) in Australia, we still find ourselves behind other nations.

The federal government has realised this and is implementing this scheme so Australia can continue to be at the forefront of medical innovation with an added incentivised benefit. The government will follow the OECD guidelines on patent boxes to ensure international accepted standards are met.

In terms of opportunity for the market, investors are moving towards sustainability and ethical investing. As Environmental, Social, and Corporate Governance (ESG) has become more prominent, Australia could look to use this patent box as a prototype to utilise commercial opportunities which could indicate a pendulum swing towards a greener and more sustainable economy.

There is potential for long-term economic benefits of this tax style. Currently, the monetary value of most biotech and medical companies IP is transferred outside of Australia. The government, however, want to change this by creating a sustainable long-term model to promote ongoing benefits for Australian companies.

The criticism of previous grants and incentive schemes promoting innovation has been that money is not the only barrier to IP consolidation. Policies that also help fuel innovation include the trust in developing solutions for healthcare chains throughout the patient journey. Further issues around grant schemes have been instances of bias, discouragement of different interests and the allocation of research funds for specific areas.

A second question mark of this scheme is its efficacy and whether it will provide an immediate boost to the economy. According to a Department of Industry, Innovation and Sciences report in 2015, they warned the patent box style will skew towards more prominent companies getting a bigger piece of the pie, which would result in less revenue for the actual country.

The bottom line however is that the lure of profit could fuel innovation and motivation for R&D. The federal government’s patent box scheme has been specifically implemented for the Australian landscape and could provide significant opportunities to help encourage medical and biotech innovation.

Australia may have just found the pathway for long-lasting innovation and commercialisation for the medical and biotech industries in Australia.  This could also provide a clear roadmap for other industries to create a sustainable model to fuel better outcomes for the nation. Now is the time for the biotech and medical industries in Australia to capitalise on this opportunity.

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Patient Box Initiatives in Foreign Nations

Fact Sheet Budget 2021

Criticism and reply of 2015 report

Inquiry APH Report

Australian Innovation System Report


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