Consider whether your business may be eligible for concessional tax treatment 4 min read
In its 2022–23 Budget, the Federal Government announced an expansion of its proposed concessional tax rates to agricultural and low emissions technology innovations. These concessional tax rates for profits derived from eligible intellectual property are known as a 'patent box'. We discuss these developments below.
Key takeaways
- Earlier this year, the Federal Government introduced the Treasury Laws Amendment (Tax Concession for Australian Medical Innovations) Bill 2022 ('the Bill') to Parliament to give effect to Australia's first patent box, covering medical and biotechnology patents granted after 11 May 2021 in respect of years starting on or after 1 July 2022. While that Bill remains before Parliament, the Federal Government has announced a series of further updates to the regime where a 17% effective tax rate may apply.
- The proposed regime will be expanded to cover eligible agricultural and veterinary ('agvet') chemical product patents, plant breeder's rights ('PBRs') and low emission technology patents. The government will consult with the agricultural and low emission technology sectors before settling on the scope of the expansion. This expansion will cover eligible patents and PBRs granted after 29 March 2022 in respect of years starting on or after 1 July 2023.
Who in your organisation needs to know about this?
In-house counsel; agricultural, agvet and energy and resources executives; accountants; patent attorneys.
Background
As previously reported, the Federal Government's proposed patent box is designed to impose a concessional 17% effective tax rate on income derived from the exploitation of qualifying patents. This includes revenue derived from sales of goods or services to which the patent relates, gains on the sale or assignment of the patent, and damages or compensation payable in respect of the patent.
The portion of income attributable to such patents, under this regime, is to be determined so as best to achieve consistency with the OECD Transfer Pricing Guidelines. This portion is further clarified based on the extent the R&D activities connected with the patents are performed overseas, as well as for the cost of any acquired intellectual property.
Key updates from the 2022-2023 Budget announcement
Expansion of the patent box
The Federal Government has proposed expanding the scope of the regime outlined in the Bill, which was limited to qualifying medical and biotechnology patents, to the following sectors:
- Agriculture: eligible agvet chemical products listed on the Australian Pesticides and Veterinary Medicines Authority ('APVMA') or the Public Chemicals Registration Information System ('PubCRIS) register and eligible PBRs.
- Low emissions technology: patented technology that has the potential to lower emissions and falls within one of the 'technology areas' listed in the Federal Government's 2020 Technology and Investment Roadmap Discussion Paper or is otherwise included as 'priority technologies' in the statements relating to its Technology Investment Roadmap Paper. The Federal Government's technology areas fall under ten broad categories: agriculture & land use, commercial buildings, electricity generation, feedstocks, fugitives, mining & industrial equipment, negative emissions, process heating, residential buildings and transportation. Its priority technologies are:
- carbon capture & storage;
- clean hydrogen;
- energy storage;
- low emissions aluminium & steel;
- soil carbon; and
- ultra low-cost solar.
The potential expansion of the patent box regime to hydrogen technologies was previously foreshadowed by our market-leading hydrogen team.
Consultation
Further consultation on the eligibility of taxpayers to access the regime is expected. For the agricultural sector, a key area of focus will be the eligibility of future agricultural technology developments, particularly robots (including drones), connectivity, artificial intelligence and GPS advancements. For the energy and resources sector, a key area of focus will be defining the scope of the requirement that the patent has the potential to lower emissions.
Eligibility
Under the proposed extension, eligible income will be taxed at an effective rate of 17% for patents granted or issued after 29 March 2022 and for income years starting on or after 1 July 2023. A nexus requirement will apply, meaning that eligible income will be taxed at the concessional rate only to the extent that the relevant R&D works took place in Australia.
Actions you can take now
- If you operate in the agricultural or energy and resources sectors, stay tuned for consultation documents to be released in the near future. Interested businesses should consider making submissions, with which Allens may assist if requested.
- Carefully consider whether your business may be eligible for concessional tax treatment and how this can form part of your future commercial plans. For further information about the patent box regime and your potential eligibility, please seek advice from our experts, including our patent box team below.