December 6, 2015
Australia could be the world’s most attractive destination for high value knowledge-rich manufacturing with the implementation of an appropriate innovation tax incentive, a major study has found.
The Australian Advanced Manufacturing Council (AAMC) report, How Australia Compares, launched today, finds however that Australia is currently losing ground to intensifying international competition.
The study compares Australia against a group of 12 competitor nations. It finds Australia must dramatically change its corporate tax and innovation incentives landscape in order to be attractive to portable, high-value businesses – and most importantly, if the nation wishes to retain Australia’s own globally-successful advanced manufacturers.
“This is an area of increasing competition internationally,” AAMC Chairman, Mr John Pollaers, said today. “As the report shows, our R&D Tax Credits are competitive. But this is not giving us the edge.
“If we rest solely on our R&D scheme, we will get left further and further behind,” Mr Pollaers said.
The report finds the introduction of a 10 per cent tax rate for profits earned on Australian generated and registered intellectual property (IP) would improve Australia’s international financial competitiveness to Number 1.
At present, Australia is lagging at number 10 out of the 12 nations studied. This situation is costing the Australian economy, the report says.
“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,” according to the report. “The UK’s supportive regime has enabled them to deliver three consecutive years of record foreign inward investment, even when flows into Europe shrunk 12% last year.”
The headline findings are:
- A business scenario of 12 tax regimes in this report demonstrates that Australia’s tax system ranks 10th based on an indicative business scenario. If the corporate tax rate applying to revenues from Australian generated IP (a common approach with countries offering IP exploitation incentives) is reduced to 10%, Australia would lift to 1st. For foreign investors, impacted by Withholding Tax payable on dividends, Australia would rank 3rd and ahead of Korea, Singapore and Switzerland. (See pp. 36, 37)
- Australia is losing ground on R&D and innovation activity. (Charts pp.11, 13 also Global innovation index, p 10)
- Australia remains an outlier in terms of foreign investment through cross border M&A, due to the non tax deductibility of Goodwill. Ireland, Germany, USA, India and South Korea all provide deductions for the amortisation of intangible assets and goodwill acquired. Australian manufacturers making such investments are at a disadvantage to their international competitors. (See Chart, p.16)
- The introduction of the UK’s combined R&D tax relief and Patent Box for commercialising IP coincides with the UK recording three consistent years of growth in attracting Foreign Direct Investment.
- This performance is remarkable in the context of a 12% reduction in investment into Europe last year.
- Competition is intensifying: Ireland will introduce a “Knowledge Development Box” offering 6.25% tax rate in 2016. Switzerland, Singapore and Canada are either in the process of introducing similar incentives or have already reduced overall corporate taxes to attract foreign investment in advanced manufacturing. (See country comparisons, Ch. 4)
The AAMC Chairman, Mr John Pollaers, said: “Australia clearly needs an Intellectual Property (IP) related tax incentive to complement our world-class research and innovation capabilities, and our competitive R&D Tax Credit system.”
“While the attractiveness of R&D and commercialisation of Intellectual Property (IP) is clearly reliant on a combination of tax and non-tax factors, there is no question an effective Australian program – well marketed – will create long-term value for both Australian business and our community.
“It will create a growing number of high value jobs and greater industrial capacity,” he said.
For inquiries, please contact:
Caroline Hartnett, AAMC
E: caroline.hartnett@aamc.org.au
M: 0408 897 577