On 11 May 2021, the Australian Government announced the introduction of a concessional tax treatment for profits derived from eligible intellectual property associated with new patents in the medical and biotechnology sectors. Such concessional tax treatment, known as a 'patent box', has been adopted in over 20 jurisdictions, including the UK, Singapore and many European countries.
The stated aims for the introduction of an Australian 'patent box' under Government policy are "to encourage companies to base their medical and biotechnology research and development (R&D) operations, and commercialise innovation, in Australia and to retain associated patent profits in Australia". The Australian Government Treasury discussion paper may be viewed by clicking here.
Informed by consultation and feedback from this discussion paper and informed by the OECD/G20 Forum on Harmful Tax Practice's (FHTP), the Government introduced the Treasury Laws Amendment (Tax Concession for Australian Medical Innovations) Bill 2022 (Bill) on 10 February 2022 which seeks to amend the Income Tax Assessment Act 1997 (Cth) to provide concessional tax treatment for ordinary and statutory income derived by a corporate taxpayer from exploiting certain patents in the medical or biotechnology sectors.
The amendments, if passed, apply to patents granted or issued after 11 May 2021 in respect of income years starting on or after 1 July 2022.
Of particular note, the Bill provides that the 'patent box' regime will only be available to an entity that:
- is an "R&D entity" that is a corporate taxpayer
that is either:
- an Australian resident, or
- a resident of a country with which Australia has a double tax agreement;
- is the legal owner of the patent¹ (not an exclusive licensee);
- commercialises eligible medical or biotechnology patents² linked to a therapeutic good included on the Australian Register of Therapeutic Goods; and
- makes an irrevocable election to opt-in to the 'patent box' regime before the due date for lodgement of the earlier tax return.
Only that proportion of eligible income from the commercialisation of an eligible patent will apply under the proposed regime to the extent that the taxpayer conducted R&D in Australia. Under the Bill, after the taxpayer makes an irrevocable election to 'opt in' they will then be able to amend prior years' tax returns to claim the concessions available once they qualify for the regime (provided they made the election before the due date for lodgement of the earlier tax return). Should a taxpayer make an amendment to an earlier tax return to claim the new tax concession, a corresponding reduction in deductions will apply to account for the portion of income made non-assessable non-exempt income.
Consultation is ongoing on whether the proposed regime should be expanded to the clean energy or low emissions sector.
- Defined as either a standard Australian patent granted by the Commissioner of Patents, a United States Utility Patent issued by the United States Patent and Trademark Office, or a European patent granted under the European Patent Convention.
- Although medical or biotechnology patents are not defined in the Bill, the 'patent box' regime covers a patent in which the complete specification discloses either a pharmaceutical substance (within the meaning of the Patents Act 1990 (Cth)) or an invention for a therapeutic good consisting of a pharmaceutical substance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
