Creating more R&D incentives and improving capital markets have been cited as potential drivers of intellectual property and tax revenue in Australia, in the wake of revelations of Google Australia’s modest tax bill.
Paul Balkus, a partner at Ernst & Young, told The Australian Financial Review that Australian politicians should introduce policies to encourage tech companies to develop their IP here.
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“Everybody jumps to: ‘Oh, somebody bought something in Australia or had a dollar coming out of Australia and therefore, well, shouldn’t I be able to tax that?’” Balkus said.
“Well, no. You have to look at what are the activities being performed in respect of that revenue.”
Balkus’ comments come after reports that Google Australia paid less than $75,000 in tax last year, despite earning $1.1 billion in Australia.
Balkus, an expert on transfer pricing, said the ability to tax a transaction depends on functions performed, assets utilised and risks assumed.
In the tech sector, that typically comes down to intellectual property – regarded as a tech company’s biggest asset.
“That IP, I can assure you, has not been developed in Australia. The technology has not been developed, nor does it continue to be developed, in Australia,” Balkus said.
Balkus said creating R&D incentives and improving capital markets could attract IP development, which could bring in tax revenue.
Three weeks ago, the Federal Government announced IP reforms in the form of the new Intellectual Property Laws Amendment (Raising the Bar) Act 2012.
Mark Dreyfus, Parliamentary Secretary for Industry and Innovation, has described the act as a “significant development” for Australian researchers.
“They now have clarity around their ability to conduct research without the threat of patent infringement,” Dreyfus said in a statement.
“The previous uncertainty discouraged researchers from working in areas where there were pre-existing patents, and where they may have been at risk of being sued.”
“Researchers will no longer need to waste time, effort and money on obtaining advice when they have concerns about how their experiments may relate to an existing patent.”
The act is designed to complement the R&D Tax Incentive, which applies to research and development activities, and expenditure in income years, commencing on or after July 1, 2011.
The R&D Tax Incentive provides a targeted tax offset designed to encourage more companies to engage in research and development in Australia.
According to Balkus, the reported trend of local entrepreneurs venturing overseas with their ideas is also concerning.
“Potentially, the next big thing will be sitting in Silicon Valley and it’ll be selling something into Australia, and Australia will be saying, ‘How come that revenue isn’t ours?’” he said.
“Well, don’t you remember? She left because you wouldn’t give her any money, wouldn’t fund her, nobody wanted to invest.”