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2019 | OriginalPaper | Buchkapitel

1. Establishing a Comparative Framework of Tax Incentives for Start-Up Investors

verfasst von : Stephen Barkoczy, Tamara Wilkinson

Erschienen in: Incentivising Angels

Verlag: Springer Singapore

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Abstract

Innovation is critical for economic growth and provides a broad range of spillover benefits for businesses and the broader community. It is therefore not surprising that many governments around the world have been actively involved in formulating polices to stimulate their innovation systems. Governments have focused their attention on a broad range of initiatives, including those specifically targeted at assisting entrepreneurial start-up companies. Start-ups are a key part of a country’s innovation system as they are the source of many new business ideas, products and services. One of the problems with start-ups, however, is that they often struggle to access funding from conventional sources, such as banks, and must therefore rely heavily on venture capital investment to grow their businesses. The reality is that without venture capital investment, many start-ups will languish or fail. In order to stimulate venture capital activity in Australia, the Commonwealth Government, as part of its National Innovation and Science Agenda, recently introduced the Early Stage Investors (ESI) program. The ESI program provides generous tax incentives to angel investors who invest in ‘early stage innovation companies’. The ESI program is loosely modelled on the United Kingdom’s Seed Enterprise Investment Scheme (SEIS) and sits alongside a number of other Australian venture capital tax incentive programs that have been designed to encourage investment in start-ups through specially regulated venture capital funds. This book examines the ESI program and compares and contrasts it with both the United Kingdom’s SEIS and Australia’s other venture capital tax incentive programs. It critically analyses the programs and draws on the comparative analysis to suggest some ways that the ESI program might be reformed to improve the delivery of its policy objectives.

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Nächstes Kapitel Innovation, Start-Ups and Venture Capital

OECD, Innovation and Growth: Rationale for an Innovation Strategy (Report, 2007) 3; Jakob Edler and Jan Fagerberg, ‘Innovation Policy: What, Why and How’ (2017) 33(1) Oxford Review of Economic Policy 2.

Australian Government, National Innovation and Science Agenda–Welcome to the Ideas Boom (Report, November 2015) 3 (‘National Innovation and Science Agenda’); Australian Government, Industry Innovation and Competitiveness Agenda–An Action Plan for a Stronger Australia (Report, 2014) v; Stephen Barkoczy, Tamara Wilkinson, Ann Monotti and Mark Davison, Innovation and Venture Capital Law and Policy (Federation Press, 2016) 18–28; Josh Lerner, Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed – and What to Do About It (Princeton University Press, 2009) 43–5; Directorate-General for Research and Innovation, State of the Innovation Union 2015 (European Commission Report, 2015) 5; Australian Government, Department of Industry, Innovation and Science, Office of the Chief Economist, Australian Innovation System Report 2017 (Report, 2017) 6.

John-Christopher Spender, Vincenzo Corvello, Michele Grimaldi and Pierluigi Rippa, ‘Startups and Open Innovation: A Review of the Literature’ (2017) 20(1) European Journal of Innovation Management 4.

Ryan Decker, John Haltiwanger, Ron Jarmin and Javier Miranda, ‘The Role of Entrepreneurship in US Job Creation and Economic Dynamism’ (2014) 28(3) Journal of Economic Perspectives 3, 3–4; StartupAUS, Crossroads – An Action Plan to Develop a Vibrant Tech Startup Ecosystem in Australia (Report, 2016) 50; StartupAUS, Crossroads: An Action Plan to Develop a World-Leading Tech Startup Ecosystem in Australia (Report, 2017) 22–3.

Stephen Barkoczy and Daniel Sandler, Government Venture Capital Incentives: A Multi-Jurisdiction Comparative Analysis (Australian Tax Research Foundation, 2007) 19.

OECD, Financing High-Growth Firms – The Role of Angel Investors (OECD, 2011) 19 (‘Financing High Growth Firms’).

Bootstrapping is a term used to refer to situations where entrepreneurs rely on their personal resources to finance their businesses: see further Barkoczy et al. (n 2) 58.

Venture capital has been described as ‘a subset of a larger private equity asset class which includes expansion or growth capital and buyouts’: Financing High Growth Firms (n 6) 23. Private equity has been described as ‘any equity investment in a company that is not publicly traded’: Beat A Brechbühl and Bob Wooder, ‘General Report’ in Beat A Brechbühl and Bob Wooder (eds), Global Venture Capital Transactions: A Practical Approach (Kluwer Law International, 2004) 4.

There are many different definitions of venture capital in the literature. The Australian Government, for example, defines venture capital as a ‘mechanism for financing new, innovative companies at the pre-seed, seed, start-up and early-expansion stages of commercialisation’: Treasury and Department of Industry, Innovation, Science, Research and Tertiary Education, Review of Venture Capital and Entrepreneurial Skills (Final Report, 2012) 13. Although venture capital predominantly involves equity investment, it can also sometimes include portions of debt and hybrid investment (e.g., investment using convertible notes).

See further, William Scheela, Edmundo Isidro, Thawatchai Jittrapanun and Nguyen Thi Thu Trang, ‘Formal and Informal Venture Capital Investing in Emerging Economies in Southeast Asia’ (2015) 32(3) Asia Pacific Journal of Management 597; Vanessa Diaz-Moriana and Colm O’Gorman, ‘Informal Investors and the Informal Venture Capital Market in Ireland’ (2013) 3(6) Journal of Asian Scientific Research 630, 632.

Financing High Growth Firms (n 6) 21.

It has been noted that fewer venture capitalists are investing at the early stages of a start-up’s growth and this funding gap has been filled by angel investors who sometimes invest through groups and syndicates: ibid.

These programs are often supplemented by a broad range of other programs that are designed to support start-ups. These other programs include a variety of different kinds of grant, loan, guarantee, incubator, and business assistance programs: see further Barkoczy et al. (n 2) 121–34. Start-ups that have received support under these programs are often more attractive to venture capital investors as they have demonstrated that they can meet the requisite criteria for securing government assistance and have usually benefited from such assistance.

The European Commission has noted that ‘tax incentives form part of a broader set of policy tools available to policy makers wishing to incentivise greater levels of business angel and venture capital investment in SMEs and start-ups’: European Commission, ‘Effectiveness of Tax Incentives for Venture Capital and Business Angels to Foster the Investment of SMEs and Start-ups: Final Report’ (Working Paper No 68, European Commission, June 2017) 48. Some of the countries that provide tax incentives to entities that invest in start-ups include Belgium (Tax Shelter for Start-ups and Scale-ups), Canada (Labor-Sponsored Venture Capital Corporations), France (Sociétés de Capital Risque), Germany (INVEST Venture Capital Grant), Ireland (Employment and Investment Incentive), Israel (Angels Law), Italy (Tax Incentives for Investments in Innovative Startups and SMEs), Japan (Tax Incentives to Promote Venture Investment), Malta (Seed Investment Scheme), Portugal (Programa Semente), Slovenia (Corporate Income Tax Regime for companies under the Venture Capital Companies Act), South Korea (Tax Exemptions for Venture Capital Companies), Sweden (New Investment Incentive), Turkey (Business Angel Scheme), the United Kingdom (Venture Capital Trusts scheme) and the United States (Qualified Small Business Stock): at 98–103.

National Innovation and Science Agenda (n 2).

Some of the other measures announced in NISA included the establishment of the ‘Biomedical Translation Fund’ and the ‘CSIRO Innovation Fund’: ibid 7. These funds are designed to support the commercialisation of medical research and research emanating from CSIRO and other publicly funded research agencies. Both funds are co-investment funds, in which the Government invests alongside private sector investors. NISA also resulted in the introduction of an ‘Incubator Support Programme’: at 16. The Incubator Support Programme provides grant funding to incubators to deliver support services to Australian start-ups with an international focus. Grants are available to support new incubators in regions or sectors with high innovation potential, and for existing incubators that are planning to expand their services. The Incubator Support Programme forms an element of the ‘Entrepreneurs’ Programme’, which provides various forms of support, including grants, to entrepreneurial businesses (see 4.2.2.1): Business.gov.au, Entrepreneurs’ Programme (30 October 2018) <https://www.business.gov.au/assistance/entrepreneurs-programme>.

StartupAUS, Crossroads 2015 – An Action Plan to Develop a Vibrant Tech Startup Ecosystem in Australia (Report, 2015) 2.

National Innovation and Science Agenda (n 2) 1.

ISA is an independent statutory body that works closely with the Department of Industry, Innovation and Science. It is responsible for regulating various aspects of Australia’s formal venture capital tax incentive programs, as well as the R&D tax incentive (see 4.2.2.1). Interestingly, ISA does not have any direct role in regulating the ESI program. Instead, responsibility for the ESI program rests entirely with the Australian Taxation Office (‘ATO’). It should be noted that the ATO is also responsible for administering certain aspects of Australia’s formal venture capital programs as well as the R&D tax incentive.

In this book, the term ‘angel tax incentive’ is used to describe an incentive that is available to individuals (although not necessarily exclusively to such persons) for investments made directly in start-ups rather than indirectly through venture capital funds. Some of the other countries around the world that have their own angel tax incentives include France, Germany, Israel, Italy, Japan, Portugal, Spain and Turkey: see European Commission (n 14) 135–40.

These countries comprised the European Union nations as well as selected OECD countries: ibid 4, 202. The European Commission noted that the SEIS’s ranking was driven by ‘high scores across scope, qualifying criteria and administration’: at 202. The rankings are discussed further at 5.10.

National Innovation and Science Agenda (n 2) 6.

It also considers a set of proposed legislative amendments to the ESI program contained in Treasury Laws Amendment (2018 Measures No. 2) Bill 2018 (Cth). This Bill was introduced into the Commonwealth Parliament in February 2018 and was before the Senate at the time of writing.

Australian Government, Industry Innovation and Competitiveness Agenda – An Action Plan for a Stronger Australia (Report, 2014)

Australian Government, National Innovation and Science Agenda – Welcome to the Ideas Boom (Report, November 2015)

Australian Government, Department of Industry, Innovation and Science, Office of the Chief Economist, Australian Innovation System Report 2017 (Report, 2017)

Barkoczy, Stephen and Daniel Sandler, Government Venture Capital Incentives: A Multi-Jurisdiction Comparative Analysis (Australian Tax Research Foundation, 2007)

Barkoczy, Stephen, Tamara Wilkinson, Ann Monotti and Mark Davison, Innovation and Venture Capital Law and Policy (Federation Press, 2016)

Brechbühl, Beat A and Bob Wooder, ‘General Report’ in Beat A Brechbühl and Bob Wooder (eds), Global Venture Capital Transactions: A Practical Approach (Kluwer Law International, 2004)

Business.gov.au, Entrepreneurs’ Programme (30 October 2018) <https://www.business.gov.au/assistance/entrepreneurs-programme>

Decker, Ryan, John Haltiwanger, Ron Jarmin, and Javier Miranda, ‘The Role of Entrepreneurship in US Job Creation and Economic Dynamism’ (2014) 28(3) Journal of Economic Perspectives 3

Diaz-Moriana, Vanessa, and Colm O’Gorman, ‘Informal Investors and the Informal Venture Capital Market in Ireland’ (2013) 3(6) Journal of Asian Scientific Research 630

Directorate-General for Research and Innovation, State of the Innovation Union 2015 (European Commission Report, 2015)

Edler, Jakob and Jan Fagerberg, ‘Innovation Policy: What, Why and How’ (2017) 33(1) Oxford Review of Economic Policy 2

European Commission, ‘Effectiveness of Tax Incentives for Venture Capital and Business Angels to Foster the Investment of SMEs and Start-ups: Final Report’ (Working Paper No 68, European Commission, June 2017)

Lerner, Josh, Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed – and What to Do About It (Princeton University Press, 2009)

OECD, Financing High-Growth Firms – The Role of Angel Investors (OECD, 2011)

OECD, Innovation and Growth: Rationale for an Innovation Strategy (Report, 2007)

Scheela, William, Edmundo Isidro, Thawatchai Jittrapanun and Nguyen Thi Thu Trang, ‘Formal and Informal Venture Capital Investing in Emerging Economies in Southeast Asia’ (2015) 32(3) Asia Pacific Journal of Management 597

Spender, John-Christopher, Vincenzo Corvello, Michele Grimaldi and Pierluigi Rippa, ‘Startups and Open Innovation: A Review of the Literature’ (2017) 20(1) European Journal of Innovation Management 4

StartupAUS, Crossroads 2015 – An Action Plan to Develop a Vibrant Tech Startup Ecosystem in Australia (Report, 2015)

StartupAUS, Crossroads – An Action Plan to Develop a Vibrant Tech Startup Ecosystem in Australia (Report, 2016)

StartupAUS, Crossroads: An Action Plan to Develop a World-Leading Tech Startup Ecosystem in Australia (Report, 2017)

Treasury and Department of Industry, Innovation, Science, Research and Tertiary Education, Review of Venture Capital and Entrepreneurial Skills (Final Report, 2012)

Treasury Laws Amendment (2018 Measures No. 2) Bill 2018 (Cth)

Titel: Establishing a Comparative Framework of Tax Incentives for Start-Up Investors
verfasst von: Stephen Barkoczy
Tamara Wilkinson
Verlag: Springer Singapore
Buch: Incentivising Angels
Print ISBN: 978-981-13-6631-4

Electronic ISBN: 978-981-13-6632-1

Copyright-Jahr: 2019
DOI: https://doi.org/10.1007/978-981-13-6632-1_1