Australia Patent box economy tax Government

New figures from the European Patent Office this month show growth in patent activity from nations that have introduced new ‘patent box’ regimes.

Patent applications at the European Patent Office grew by 4.8% year on year according to the EPO’s 2015 Annual Report. While this is respectable growth, much of it came from non-European applicants including the US, Japan, South Korea and China. In fact, the number of European patent applications from the 28 EU member states grew modestly by 0.3%.

So with low growth in patent applications across Europe generally, did preferential tax treatment make a difference to the amount of innovation and R&D taking place in patent box nations? 

Ticking all the right boxes

Of the six largest economies in the EU, the two that have recently introduced patent box regimes saw the largest increase in European patent applications year on year. In particular:

  • Italian applications were up by 9%, reversing a four year declining trend in the number of applications. The Italian patent box was available from 1 January 2015, and effectively reduced tax on income attributable to Italian IP by 30% in 2015. This benefit will increase to 50% over the next two years.
  • Patent applications from the UK were up by 5.7%, well above the EU average and the highest increase for the UK in the last five years. The UK introduced a very competitive patent box program in 2013 which will close to new entrants from 1 July 2016. A revised regime that accords with the OECD’s preferred program design is likely to replace it.

In top EU economies where patent box regimes are more longstanding (Spain, The Netherlands and France), growth in EPO patent applications also exceeded the EU average (at 3.8%, 3.3% and 1.6% respectively).

Conversely, Germany, the largest EU economy and the only nation in the top six economies with no preferential tax treatment for IP, saw a significant decline in European patent filings. German applications were down by 3.2% in 2015 compared to 2014.

Does this mean patent boxes work?

There are a lot of factors that can influence innovation, R&D and patent behaviour. Having said this, the data that the EPO has published shows that nations that have recently introduced patent boxes have seen a substantial uptrend in patent activity. This likely reflects an increase in innovation and R&D in these nations.

Reinforcing these statistics, businesses like GlaxoSmithKline have gone on record as having relocated offshore R&D operations back to the UK to take advantage of the UK patent box regime. Other businesses are citing patent box benefits in financial reports, demonstrating strong adoption of the incentives.

Australia should be thinking ‘inside the box’

It's becoming clear that patent boxes are helping to foster measurable innovative and economic activity in the nations that implement them. As the evidence mounts, we will see continued proliferation of these programs globally.

Australia will need to keep a close eye on this trend and act accordingly to stay in the fight to win and retain innovative businesses.

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