Innovators treated unfairly: tax law changes needed
Media release
16 September 2011
Innovators treated
unfairly: tax law changes needed
New Zealand tax
law’s unfair treatment of intellectual property owners is
undermining the Government’s efforts to encourage an
innovation economy, according to an intellectual property
commercialisation expert.
Paul Adams, Chief Executive
Officer of intellectual property commercialisation firm
EverEdge IP, says the Income Tax Act (2007) taxes patents
and patent applications unfairly because it treats them as
an asset when they are in someone’s possession, but taxes
them as income when sold.
“Money spent on patents
must be capitalised and therefore treated as an asset,
rather than a tax deductable expense. Yet revenue earned
from selling patents is considered to be income and taxed at
income tax rates.
“From a tax perspective, patent
owners are getting the worst of both worlds. This approach
punishes innovators for developing intellectual property
assets.”
Mr Adams commented that if Labour
introduced an encompassing capital gains tax patent owners
would be further penalised.
The approach to patent
taxation has the potential to undermine the development of
New Zealand’s innovation sector because it encourages
innovators to locate their intellectual property
offshore.
Relocating intellectual property offshore is
even more compelling when New Zealand’s high tax rate on
royalties is taken into account. Other countries, such as
Singapore, Belgium, Spain and the Netherlands, are
attractive because they have very low tax rates for income
derived from intellectual property.
Mr Adams is aware
of a number of New Zealand businesses that have relocated
their intellectual property overseas as a result of our tax
regime.
Patent tax
“This legislation
makes absolutely no sense. R&D tends to base itself where
intellectual property is held. With this regime there is no
incentive to keep patents in New Zealand. The country ends
up missing out on high value job creation, innovation and
export revenue.”
Further the law is not well
understood and many companies are unaware of the
situation.
“This anomaly is an obscure part of New
Zealand’s taxation law. People are being caught out
because they don’t realise that selling intellectual
property, even in the context of a receivership, liquidation
or restructure could create a substantial tax
liability.”
He notes that the specialised nature of
valuing and transacting intellectual property means that few
accountants understand the law’s implications, so they are
not bringing it to their clients’ attention.
Mr
Adams advises innovators and those who own patents or patent
applications to seek expert intellectual property
commercialisation advice on how to fulfil their tax
obligations whenvaluing or dealing with their intellectual
property.
“It simply does not make sense to tax
innovation in the current way,” he says.
“As much
as it pains me to say it, New Zealand innovators should be
thinking long and hard about where best to locate their
intellectual
property.”
ENDS