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KPMG, EY call for patent box regime to attract, retain IPs

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KPMG and Ernst & Young (EY) accounting firms have called for policies that will encourage innovation and intellectual property (IP) creation, among a multitude of suggestions in their Budget 2017 wish lists.


TWO of Singapore's major accounting firms have called for policies that will encourage innovation and intellectual property (IP) creation, among a multitude of suggestions in their Budget 2017 wish lists.

KPMG and Ernst & Young (EY), who released their lists on Thursday, have both proposed the introduction of a patent box regime, which usually offers reduced tax rates on income derived from IP.

It aims to attract research & development (R&D) or innovative activities into the country, and thus create and add value to the economy.

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KPMG head of tax Chiu Wu Hong said that it is difficult to attract companies to migrate IPs from their home countries to Singapore as there will be exit taxes imposed on them.

He said: "It is easier to attract companies to develop their IPs in Singapore. That is where R&D comes in very handy and useful."

Currently, where a company based in Singapore acquires IP rights, such costs can be eligible for a writing down allowance only if the company acquires both the economic and legal rights to the IP.

For companies that create IP here, such costs can only be deductible if they fall within the R&D criteria.

Tan Ching Khee, partner of tax services at EY, said: "A review and enhancement of various types of IP will go a long way in ensuring that the Singapore IP tax regime is aligned with other jurisdictions."

He also said the definition of IP can be broadened and called for the government to reconsider the current requirement of both legal and economic ownership of IP rights before writing down allowance can be made.

At KPMG's forum for the launch of its pre-Budget report, the panel alluded to the exodus of IPs from Singapore, such as the acquisitions of local brands at high premiums by foreign companies, where a strong brand is also considered an IP.

KPMG's Mr Chiu said: "We should not lose the value of IPs generated internally because if we don't give them the value, some companies would start unlocking the value by selling their businesses to other companies."

But he said not all companies are like startups that are built and sold to make money. Mr Chiu said: "Some businesses have sentimental and emotional value. They would like to continue. But let's say someone came with a very attractive premium, it would be silly not to sell.

"That's because they see the intangible value in the local company that has been established for many years with strong network in the region."

But somehow this was not recognised, Mr Chiu noted.

He said: "If we could value this somehow, have some way to recognise it, that would deter some of them from selling and continue to build their brand name and expand what they are doing.

"And this will be good for us because it will create stronger and globally-competitive companies."

Kurt Wee, president of the Association of Small & Medium Enterprises, said that losing IPs also has strategic implications. He said: "We worked so hard, we built it and then as a private individual, they have all the rights and they decide to be acquired but Singapore as an economy, loses the ownership and the specialist in that particular business space.

"For economic and strategic reasons, I see the need for a long-term incentive to attract continued domicile in Singapore for businesses that have reached a certain level of establishment."

The firms also called for incentives to help businesses transform themselves for the digital economy.

KPMG proposed a double tax deduction to retrain employees for roles supporting the digital business, as well as allow more flexibility to employ foreign manpower with IT skills to address a current shortage.

Meanwhile, EY suggested a preferrential tax rate of 10 per cent or lower to promote financial innovation by financial services companies.

As the Productivity and Innovation Credit scheme expires after year of assessment 2018, KPMG has called for the scheme to be extended for another year, considering the L-shaped growth that small and medium enterprises are experiencing.

EY hopes the government can grant enhanced deduction claims on training costs incurred by businesses for their employees, with the option to convert qualifying training deductions into a non-taxable cash benefit.

KPMG's poll of 123 companies large and small in the last two months of 2016 showed that 70 per cent of them cited global economic outlook as their top three business concerns over the next three years.

In the 2015 poll, 50 per cent of businesses polled were pessimistic about the global economy.