Australia

Details

  • Service: Tax, R&D Incentives
  • Type: Regulatory update
  • Date: 30/07/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Jonathan Turner

Jonathan Turner
Executive Director, Tax

+61 7 3225 6888

jturner5@kpmg.com.au

Obtaining proper entitlements 

by Jonathan Turner, R&D Incentive Specialist

Under the Research and Development (R&D) Tax Incentive, Australian R&D activities can be claimed where undertaken by an Australian permanent establishment (PE) on behalf of a foreign resident or an Australian subsidiary on behalf of a foreign resident, provided there is a written agreement in place and the country the foreign resident resides has a double tax agreement (DTA) within Australia.

For multi-national companies, depending on the overseas jurisdiction in which the foreign resident is based, and whether there is an appropriate R&D incentives program in place, there is an opportunity to arbitrage between R&D regimes – that is, claim R&D incentives on some or all of the R&D activities and expenditure in both Australia and the overseas jurisdiction.

 

A number of jurisdictions with DTAs in place with Australia have R&D incentive programmes which allow overseas R&D incentives to be legitimately claimed in the resident country as well as in Australia. Examples of this could be a United Kingdom (UK) Small and medium enterprises (SME) paying for R&D to be undertaken by its PE in Australia or a Japanese corporate commissioning R&D work with one of its Australian subsidiaries.

 

This is not restricted to just R&D work inbound into Australia. The same could be true for R&D work being commissioned by Australian companies to their overseas parent or subsidiary companies; provided that the Australian R&D Incentive overseas expenditure provisions are met and the claimant company lodges an overseas finding, there is once again the opportunity to benefit from R&D incentives in both Australia and the overseas jurisdiction.

 

For both scenarios, the interrelationship between the R&D and Transfer Pricing requirements needs to be fully understood and coordinated. Achieving appropriate classification of the R&D technical challenges associated with the project being carried out in Australia or overseas and aligning these activities with the functional risk under Transfer Pricing principles need to be carefully considered. Please consult with your R&D and Transfer Pricing specialists prior to moving forward with such dual claims.

 

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