Australian companies will lose out against against foreign players
and may have to lay off workers if the Abbott government succeeds in
passing laws that would cut research and development tax breaks for big
companies, experts say.
The federal government has struck a deal with the Palmer United Party
in attempt to pass the laws, which were first introduced by the former
Labor government.
The original proposal would have affected about 15 to 20 of
Australia’s largest companies, such as Telstra, BHP and Rio Tinto. Tax
experts say the changes will now impact another 50 companies including
pharmaceutical giants such as CSL.
The government’s original proposal was to reduce tax offsets by 1.5
per cent and abolish R&D tax incentives to companies with a yearly
turnover of $20 billion or more, a measure that would save a government
desperate to reduce its budget deficit $1.1 billion over four years.
While the measures passed the lower house at the end of 2013, it
struggled to pass through the Senate, opposed by both Labor and the
Greens.
The government agreed to amendments from PUP which now change the
conditions upon which the tax break can be claimed. Under the deal with
the PUP, the amended legislation states that the laws will apply
retrospectively – backdating to July 1 last year – and that there will
now be a reduced tax offset rate for companies with expenditure above
$100 million.
KPMG’s head of R&D, David Gelb, said the changes would not impact
targeted revenue collection, but would bring pharmaceutical and
manufacturing industries into the mix of companies now facing limited
R&D tax concessions.
“While the number of companies might seem to be insignificant,
companies in these industries are the ones that employ a lot of the
people in research,” he said.
“It may unfortunately discriminate against Australian companies as
there will be foreign companies that get their full entitlements for
R&D tax concessions.”
An Australian company spending $150 million on R&D, whose claim
is now limited to $100 million, of which the tax reduction is $10
million, is disadvantaged against a foreign company spending $80 million
on R&D and getting the full $8 million tax reduction, he said.
“As they move into next year’s budget they will have no choice but to
reduce next year’s headcount and take their R&D offshore where
there are better incentives,” he said.
He said the decision to apply the laws retrospectively was “unprecedented globally”.
“Companies have already spent the money and done the R&D on basis
they will have that entitlement there,” he said. “Each company will
have to make their own decision as to whether they reduce headcount
between now and end of the year.”
Mr Gelb said the Abbott government would have been better off
examining these issues as part of its innovation review and tax white
paper. “They should have put things on hold until there had been proper
consultation,” he said. “There’s been no consultation and industry is
entitled to feel hard done by.”
The changes come as other countries increase tax incentives aimed at
drawing new investment including patent box regimes in Britain.
This news story is reprinted from www.smh.com.au
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