The Australian Patent Box will see corporate income from eligible Australian patents in the medical and biotechnology sectors taxed at a concessional rate of 17 percent from 1 July 2022.
The Patent Box regime will only apply to companies that have satisfied the eligibility requirements, have been granted an eligible patent and derive eligible income from these patents.
Talk to us about how we can help you prepare your company to capitalise on the new program.
We are assisting businesses to prepare the information, systems and processes that they will need to maximise the benefits of the patent box including:
Eligibility for the Patent Box will be based on the use or classification of individual patented inventions, rather than the overall industry classification of your company. Other criteria likely to influence eligibility are the timing of the patent and the stage of the patent application.
In preparation for Patent Box claims, businesses should begin assessing their patent portfolios and how their inventions align with revenue streams.
The proportion of a company’s income that can receive the concession is the amount attributable to Australian R&D, and not foreign R&D. This means you will need to identify the pools of R&D expenditure that relate to your patents, and where that R&D was conducted.
It is likely that this R&D expenditure will span a number of income years, result in more than one patent, and could differ from the definition of R&D expenditure used in the R&D tax program. Businesses looking to get the most out of the Patent Box need to develop methods to capture and attribute R&D spend to their IP.
To access the concessional tax rate, companies will need to identify the income and profit that is attributable to eligible patents.
If the upcoming legislation is not prescriptive about deeming a formula for calculating a return on the patent, economic analysis may be required to determine the part of the income attributable to the patent. This position may be even more complex where multiple patents are used in a product or service.
As with any system that provides tax incentives there will be provisions included to prevent the program being exploited by artificial means. For the Patent Box, this may include using commercially irrelevant IP rights to secure benefits, or incorporation of patented items into a product or licensing agreement with the main purpose of securing Patent Box benefits.
While these rules will not be intended to impact genuine claims, it is important that these rules and the general tax law be navigated in a way that prevents future issues with program compliance.