With the federal government about to unveil new policies in the innovation statement today, a new study suggests Australia needs more competitive taxation for intellectual property.
The Australian Advanced Manufacturing Council (AAMC) report focuses on “knowledge-rich manufacturing”. Countries must compete with each other to attract investment, both by foreign and domestic companies, it says.
Australia is currently ranked 10th in attracting foreign investment, according to the report. Australia only attracted 36 new greenfield research and development projects — a project that creates new jobs and capital investment — since 2003. In the same period India attracted more than 300 projects and Singapore almost 150.
The reason, according to AAMC, is that Australia has one of the highest total tax rates, at 47.3% compared to the average of 35.9% in top countries. While Australia has a generous research and development tax credit, at 40% equal first with South Korea, there are no policies to encourage intellectual property.
The report finds that Australia had a net deficit in intellectual property use in 2014, with $US 891 million earned in fees for intellectual property while $US 4 billion was paid out. At the same time, the US, UK, Germany and Switzerland all had intellectual property surpluses.
AAMC recommends the introduction of a 10% tax rate for profits earned on Australian generated and registered intellectual property. It says this would make Australia the most competitive for intellectual property, encouraging more foreign firms to locate their research and development operations here.
“Canada, Ireland and the UK have successfully reduced their total tax take on companies to a fair and competitive level to support the country with increased R&D and foreign business investment,” the report reads.
The Canadian government provides tax deductions on both local and federal levels, and the UK government provides tax relief of up to 230% on research spend.
Ireland has a low corporate tax rate – just 12.5%, but has also encouraged companies such as Google and Apple to hold their intellectual property in the country through policy innovations like a “Knowledge Development Box” – a 6.25% tax on income derived from patents and software copyright.
The report also notes that Israel, a country Australian politicians have said they want to learn from, is currently exploring a 5% tax rate on profits from patents. This would encourage both foreign and domestic firms to research in Israel, as well as transfer ownership of their patents to local subsidiaries.