G20’s tax evasion concern stymies Australia’s patent box scheme before it starts

Meredith McBride in Hong Kong

Though base erosion and profit shifting (BEPS) took the front seat during meetings between global leaders on November 15 and 16 at the G20 forum, country leaders also expressed concern over the taxation of intellectual property (IP). Patent box regimes in particular were mentioned as a method used by large corporations to exploit tax incentives.

Australia’s finance minister Joe Hockey singled out such IP tax regimes at the G20 meeting of finance ministers. He proposed that countries with patent box schemes “ensure that they are not inappropriately used for tax avoidance”.

Patent box schemes, so named because of the box on tax forms for indicating patent ownership, were developed to prevent multinationals from only conducting R&D activities in low tax jurisdictions. Many European countries, most notably the UK, have offered tax incentives on income derived from patented technologies if corporations register the patent there.

The scheme broadens traditional research and development (R&D) tax incentives because it allows income attributable to patented technologies to be subject to a discounted rate even after the R&D has taken place.