Sydney partner Nick Abrahams writes on the challenge ahead for the Turnbull Government as it embraces digital disruption, including the need for a fresh approach on intellectual property.
This article was originally published in The Australian Financial Review and is reproduced with permission.
Canberra's Digital Dream Team needs to put IP strategy high on agenda
by Nick Abrahams
The excitement of having a Prime Minister who knows tech has died down. It is time to assess what the country needs from him and his Digital Dream Team of Christopher Pyne, Mitch Fifield and Wyatt Roy.
There has been a lot of free advice for the new team already, but agenda items where I think the government can make a difference are: bold intellectual property and research and development tax policy changes; supporting our academics to become entrepreneurs; working collaboratively with fast-growth companies; and facilitating easier employment of foreign tech talent.
The key issues are what government can do to help the growth of our start-up and fast-growth companies and keep them in Australia once they become successful.
More funding and better education addresses part of this problem, but a fundamental solution to these issues is to make Australia a country where companies want to locate their intellectual property.
IP such as software code is the revenue generator of the digital economy and it is intangible so it is capable of easy movement globally. Singapore recently announced its Intellectual Property Hub Master Plan where it seeks to be the main jurisdiction in Asia for companies to locate their IP.
Australia needs a similar IP strategy.
1. TAX JURISDICTIONS
Companies look for two key attributes when considering where to locate their IP: strength of IP protection laws and favourable IP tax treatment. Australia, unlike countries such as China, is a standout with IP protection laws.
However, we are not a favourable tax jurisdiction for IP, especially up against countries such as Singapore and Ireland. We should review how we can change the tax treatment of IP and R&D to make Australia attractive to IP owners.
Many fast-growth companies, when starting out, ask me if they should structure their affairs so that their IP is owned by a company in a more favourable tax jurisdiction.
Generally speaking, it is better for early-stage companies to focus on getting a viable business model and revenue traction before incurring significant costs associated with more exotic corporate structuring. But it shows that even at the very beginning, our entrepreneurs are thinking of getting their IP (that is, the revenue) out of the country.
This issue becomes even more pronounced once companies become successful. While capital gains tax makes it difficult to move IP that already resides here, there is definitely an incentive to do R&D overseas and keep it (and the relevant profits) out of the country.
With the proper settings in place, Australia could become a country of choice for IP-owning companies, serving to not only keep our tech companies here, but attract foreign IP-rich tech companies.
Perhaps a world where the Double Irish Dutch Tax Sandwich is replaced by the Australian Meat Pie Tax structure.
As we have seen with Singapore's IP hub strategy, promotion will be key. Perhaps take a leaf out of the Tourism Commission's book and get Hoges and his barbie back or even have Lara Bingle reprise her infamous line: "Where the bloody hell is your IP?"
Now to our academics. We are the country that invented Wi-Fi, we have world-class scientists here. The difference is when someone graduates from Stanford with a PhD, they start their own business and further their research in the commercial sector.
The default setting for Australian PhDs is to look for grant funding to continue their research within university or CSIRO walls. This is in no way a criticism of our scientists; it is simply a career progression that exists in Australia because of the historical difficulties of growing innovative businesses.
The need to feed children and pay the mortgage is an imperative not easily overlooked.
2. BECOMING ENTREPRENEURS
The government can do more to assist our brilliant men and women to move from a research-grant mindset to an entrepreneurial one.
The appointment of Larry Marshall as chief executive of CSIRO is a great step in the right direction. He is an Australian physicist who created and exited two of his own companies in the US before moving into venture capital.
The government needs to work with our start-ups. With fast-growth companies, I think the relationship with the government might sometimes be one of, "I don't want your money, honey, I want your love".
Early-stage companies need use cases to establish credibility. The government has an opportunity to help these companies by working with them, by using their innovative tech. This will have the effect of helping the home-grown tech company but will also help the government become more innovative.
This is particularly important for Mitch Fifield in his other role as Minister Assisting the Prime Minister for Digital Government. Our fast-growth companies can assist the government to innovate as it seeks to achieve its digital transformation goals.
One example of this is where the Tax Office worked co-operatively with online legal disruptor LawPath in relation to the new Employee Share Scheme changes. As a result of the ATO being prepared to promote, on the ATO website, LawPath's automated Easy ESS documents, more than 100 businesses have now downloaded their free customised share scheme documents from LawPath.
Finally, we need a vibrant developer and tech talent community in Australia. We have a relatively shallow digital talent pool and this is holding us back as a country.
We can improve on the constraint with more focus on STEM subjects in schools but this will take time.
The sector needs a quick solution and relaxing the 457 visa process to make it easier to bring talented people into Australia will benefit the tech ecosystem. Not only will it allow us to help our start-ups to be globally competitive but it will assist in retaining key tech companies in Australia.
We should aim to be a destination of choice for the global digital talent pool.
I know these four initiatives are not easy to implement but I believe they are critical to address the issues hamstringing Australia's ability to secure our role in the global digital economy.
If these are too hard to get started on immediately, there is an easy win for the government to remove the GST on crypto-currencies like bitcoin. We should follow Britain and Spain and encourage this game-changing new concept in financial transacting.
With the Digital Dream Team in place in Canberra, now is a time for bold thinking and nation-building action.