Why ‘whole of mine’ fails the interpretation test
The floor of the United Nations General Assembly buzzes with the languages of its 192 member states.
Yet, as each representative rises to speak in their native tongue, they are confident that what they say will be faithfully interpreted to the balance of the assembly. They understand that a verbatim translation of what is said may make no sense in a foreign tongue, and so rely upon the interpreters to communicate the meaning as best they can. This transfer of meaning is the interpretation test.
But, no one is present to interpret English to English, or Spanish to Spanish.
Sometimes you need interpretation even in your native tongue
When the Cutler Review of the National Innovation System published its report Venturous Australia in September 2008, one shorthand phrase in the analysis of the R&D tax concession stood out, the reference to ‘whole of mine’ claims. This is what was recommended:
appropriate measures be taken to heavily constrain ‘whole of mine’ and similar claims against the existing R&D Tax Concession program or proposed Tax Credit program.
Unfortunately, from literally interpreting the phrase, many people think they know what ‘whole of mine’ claims are, but the term has no legislative, policy or administrative meaning. In fact, the government has said nothing about the phrase or policy issue at all.
Yet, we have already started to receive questions from AusIndustry on behalf of Innovation Australia as to whether or not particular projects or claims are ‘whole of mine’ claims.
In one case the applicant has been asked why a claimed project is not a ‘whole of mine’ claim, despite the claim being for a very small fraction of one year’s operating costs.
This is the problem of shorthand, and of administrative decision makers interpreting a policy signal from a review document.
We need to focus on context for interpretation
In our response to the Cutler Review Report we said:
The term, ‘whole of mine’, has recently emerged as a type of shorthand for describing large claims and needs to be removed from the lexicon of the discussion. It adds an emotive element that clouds discussion as to the role that can be played by a tax instrument in innovation policy. A mythology has been built up around these claims that needs to be moved on from in the current debate.
Large claims are definitely made within these industries from time to time but MJA suggests that this is not routinely the case. Our profiling of our client base suggests that large one-off projects are an occasional feature of large, diversified groups such as mining houses and engineering firms. They make up but one component of their substantial, constantly evolving portfolio of innovation activities. Even when they occur, total R&D claims will invariably fall well below 10% of group turnovers in the relevant years.
This context is critically important. Just because large claims are made they do not necessarily demand further scrutiny. Moreover, many smaller companies, including those in the biotechnology, medical research and software sectors routinely have periods of R&D intensity that equal or exceed those of larger firms.
But you don’t hear an outcry about ‘whole of cure for cancer’ claims.
We need to focus on eligible R&D and eligible expenditures
In either case, ‘whole of mine’ or ‘whole of cure for cancer’, what advisers, government assessors and decision makers need to come back to is an assessment of the principles of eligibility of both the R&D being undertaken and the associated, eligible expenditures.
Under the present rules, R&D is neither more nor less eligible for government support because of the size of the expenditure on the project. This is one of the benefits of having the administration of eligibility of activities separated from the administration of the eligibility of expenditures.
Innovation Australia, in looking at the eligibility of activities, should reach the same outcome as to eligibility regardless of the expenditure involved. In fact, the quantum of expenditure should be irrelevant to the decision making process, and the provision of such information should be optional.
Similarly, the ATO should reach decisions as to the eligibility of expenditures without regard to the nature of the R&D activities undertaken. Whether they assume an activity to be eligible or request assessment of eligibility by Innovation Australia, the outcome should be no different for the taxpayer.
We need an end to the innovation policy vacuum
The Minister for Innovation, Industry, Science and Resources has repeatedly said that “in the twenty-first century, innovation policy is industry policy“. To date, though, most of his actions have been around very traditional industry policy areas: automotive; textile, clothing and footwear; and university research.
The current global financial crisis has affected the speed with which a cogent response to the recommendations of Venturous Australia can be prepared. But if we are going to see a ten year innovation policy announcement from the government it’s going to need some level of consultation and analysis.
Ideally, there will be an opportunity to engage on topics that span policy, politics and administration, as a ten year policy will likely need some level of bipartisan, industry and administrative support to be well received and executed.
Most of all we need fair interpretation for program certainty
It is unfair that applicants for the R&D tax concession need to address a loaded and vague term like ‘whole of mine’ when defending their claims.
It is even more unfair when they need to do so because administrative decision makers are interpreting future policy signals from a government-initiated review of the National Innovation System when there is no policy response.
Just imagine if this level of misinterpretation was at work in the United Nations General Assembly.
Perhaps there would be demand for people to interpret English to English after all!
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