Response to the Patent Box Discussion Paper

This submission to the Treasury responds to its discussion paper on the proposed Australian patent box, a concessional tax rate on income from patents in the medical and biotechnology sectors announced in the 2021–22 Budget. Research Australia, which has long called for a patent box, supports its introduction and accepts that it must comply with the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action 5 minimum standard, but maintains that the United Kingdom’s scheme is a better model than several proposed design features. It recommends rewarding companies that use their patents to develop and manufacture products in Australia, rather than limiting the concession to royalties and patent sales; lowering the proposed 17% effective rate to 10%, in line with the United Kingdom, France and Spain; accepting patents granted in specified overseas jurisdictions as well as by IP Australia; extending eligibility to patents applied for before 11 May 2021 for research and development spending incurred after that date, since much medical product development, including clinical trials, occurs after patenting; applying the concession to all research and development the taxpayer incurs, including overseas clinical trials needed to meet recruitment targets; and adopting the income streaming test rather than the patent-level test to target the sector. An appendix compares European patent box regimes as of 2020.