As a leading professional services firm, KPMG Australia (KPMG) is committed to meeting the requirements of all our stakeholders – not only the organisations we audit and advise, but also employees, governments, regulators and the wider community. We welcome the opportunity to provide a submission to the Patent Box Discussion Paper (the Paper) released by Treasury.

KPMG supports the government’s proposal to introduce a Patent Box regime that complies with Organisation for Economic Cooperation & Development guidelines. The Patent Box has the opportunity to provide a meaningful incentive for businesses to carry out research and development (“R&D”) in Australia and to retain an economic interest in patents arising from that R&D.

In KPMG’s August 2021 submission to the Second Issues Paper released by the Senate Select Committee on Financial Technology and Regulatory Technology, we noted that a patent box regime can reward business for both developing and commercialising intellectual property in Australia.

Several jurisdictions around the world are offering Patent Box regimes and in an increasingly competitive landscape it is timely for the federal government to review its options for attracting footloose R&D expenditure and incentivising capital investment.

In supporting the Patent Box regime, this submission recommends that Treasury consider the eligibility of foreign patents and previously lodged patents. We also support the use of existing legislative concepts and definitions where possible and further consultation on how business tracks and records relevant expenditure and revenue. Lastly, the inclusion of clean energy technology in the patent box would be a welcome next step once the regime has been successfully implemented across the biotechnology and medical technology sectors.

KPMG looks forward to continued engagement with the Australian Government as it develops its final policy approach to Patent Boxes over the coming months.

KPMG recommendations

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Recommendation 1:

Revenue from a foreign patent, derived by an Australian taxpayer entity, should also be eligible for the patent box provided the associated R&D meets the threshold for Australian nexus and the criteria for obtaining the patent in the overseas jurisdiction are similar to or more stringent than those in Australia.

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Recommendation 2:

Revenue from a patent granted in the 12 months prior to 2021 Budget night should also be eligible, providing an incentive to retain these patents within the Australian tax net. These patents are unlikely to have commenced generating major revenue before 1 July 2022. It could otherwise take much longer for the program to have a meaningful impact on an innovative business’s tax position.

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Recommendation 3:

There will be a requirement for a range of definitions in terms of eligible revenue, allocation of expenses to the patent box, Australian nexus of the R&D, etc. Insofar as is reasonable, the regime should consider using streamlined formulae rather than detailed calculations and make use of existing definitions and concepts contained in the tax law and generally accepted accounting principles.

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Recommendation 4:

There should be consultation with industry bodies on using administrative approaches that will align with how these businesses already record and track their revenue and expenditure (which could include for example accounting principles around segmentation).

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Recommendation 5:

Inclusion of clean energy technology in the patent box (in addition to currently proposed medical and biotechnologies) would be welcome. It may be preferable to assess the impact of the new regime on the first-wave industries before expanding the scope. We recommend further consultation with clean energy industry participants with relevant patents and especially those who are working towards obtaining such patents.

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