Australia a world leader in R&D tax incentives 

My name is David Gelb and I'm the Global Lead Partner of our R&D Tax Incentives Practice. My role is to deal with government in various parts of the world and really to understand what the real imperatives are for the R&D regimes that exist in over forty countries.

It's becoming increasingly obvious that all governments are talking to each other about R&D incentives in the same conversations they're having around corporate tax rates and compliance. It is actually said very strategically these days by governments to use this as a lever to attract and retain investment within their particular countries.

The main form of incentive is in the form of enhanced tax deductions. For example, in Australia up until recently, companies were able to get a 125% tax reduction. In other jurisdictions it might be in the form of a tax rebate or refund or credit, and other regimes also offer immediate tax deductibility for costs which otherwise would have been on capital account.

Most regimes try to offer the incentives to all industry. They do tend to augment that though by providing discretionary grants to industries, for example, automotive industries and some of the older manufacturing industries. Basically, industry support has really seen that because for example in manufacturing, the natural shift of labor through to low cost locations like Asia really means that if we are to maintain industries in places like Australia, we need to offer additional incentives to remain.

Firstly, Australia as a nation really does punch above its weight. Over the past twenty years or so we've seen a quantum shift in the way that Australian business has evolved. We were heavily reliant some twenty years ago on manufacturing whether it was automotive or textile clothing and footwear, but what inevitably has occurred is that those jobs have been lost to Asia. And we've had to reinvent ourselves and what we've done particularly well is to develop great capability through our fantastic education system into design innovation and engineering to use that as the ability to export intellectual property to other parts of the world. And what we've seen very recently from 1 July 2011, the Australian government has changed the R&D tax system. It is actually one of the best systems in the world and it's looked at by many other governments, but to the government has now seemed to augment that by particularly A) increasing the rate and B) offering additional incentive for multinationals to come invest in R&D in Australia.

We saw in Singapore, for example, in our region some three years ago, the government of Singapore introduced a regime for R&D incentives modeled on what happened in Australia and very quickly they saw the benefits of that. The incentive was working and what they've done more recently is to increase the R&D tax deduction to 400%. Now that is the highest in the world and definitely they do see this as a great opportunity because if you can attract all the innovation, all the ideas, then a path to commercialization through the exploitation of the outcomes of R&D is a great way to underpin economic growth.