In this article we provide information about some changes made in April 2020 to the Australian Government’s Export Market Development Grants (EMDG) program.  In conjunction with explaining those changes, we explain what the EMDG program is all about, and in particular, what those changes can do to improve the financial circumstances of IP rights owners.

SUMMARY

  • As a result of the impact of the COVID-19 coronavirus pandemic, the Federal Government is adding an extra $50 million into the EMDG program for the current 2019–2020 financial year, to allow export oriented individuals and businesses to get additional reimbursement for costs they have incurred in marketing their products and services around the world.
  • This means that the total EMDG program funding in the 2019–20 financial year is now more than $200 million, which is the highest level since the program started in 1997.
  • As it relates to intellectual property rights (IPR), the EMDG program already operated as follows:
    • The maximum EMDG claim is capped at $50,000 in the specific sub-category of IPR expenses.  Eligible applicants receive a grant, paid in two tranches.
    • In the first tranche, the maximum amount of expenses considered for any grant claim is capped at $40,000.
    • In the second tranche, Austrade normally apportions its remaining available funds across all those eligible applicants who claimed between $40,000 and the maximum allowable $50,000 of IPR expenses.  Because it is a competitive process for the remaining budget, the second tranche is typically only partially funded.
    • After all applications have been assessed, the second tranche is normally paid in July of the following financial year.
  • The additional funding for the EMDG program means the following changes have been made:
    • For applications lodged in 2019–20, the payout factor for the second tranche will be 100%, so all eligible grant claims will be fully reimbursed.
    • The payment date for the second tranche grants for the 2019–20 financial year has been brought forward to 31 March 2021. This means that exporters whose EMDG applications have been assessed as eligible for more than $40,000 will start to receive those funds by early April 2021, instead of waiting until July 2021.
    • If you incurred EMDG-eligible expenses for promotional activities in 2019–20 and 2020–21 but the activities were impacted by COVID-19 (such as trade show cancellations), and the expenses were not refunded to you, Austrade will treat these activities as actually having taken place, and therefore claimable.
    • The Government has waived the export performance test for those applying for a grant in 2019–20.  Any business which has incurred eligible EMDG expenses for marketing and promotional activities will be able to seek reimbursement even if you didn’t actually export anything.

BACKGROUND INFORMATION ON EMDG

In this section we explain what the EMDG program is all about, in particular as it relates to grant claims made by IP rights owners.   The topics are:

A – What is the Export Market Development Grants (EMDG) program?

B -What kind of expenses can be claimed?

C – Specific costs related to IPR which can be claimed

D – How much can be claimed?

E – When do you need to file your application by?

A – What is the Export Market Development Grants (EMDG) program?

  • The EMDG program is an Australian Government financial assistance program for aspiring and current exporters, and is aimed at encouraging you to explore overseas markets.
  • The program was established under the EMDG Act (1997) and is administered by Austrade. It is relevant to individuals, and to small and medium size companies in Australia.
  • Eligible EMDG applicants need to have an income of less than $50 million for the year. Those applicants can obtain up to a total of eight (8) annual financial grants from the Australian Government to reimburse them for “eligible export promotion expenses”, which can include locating foreign investors, distributors or licensees.
  • During the process of expanding their activities outside Australia, exporters may need to create intellectual property rights (IPR) to protect aspects of their business. The EMDG program also offers help with the cost of establishing those IPR.

B – What kind of expenses can be claimed?

  • The EMDG program was established to encourage businesses to increase international marketing and promotion expenditure, ultimately to achieve international sales.
  • Any Australian individual, partnership or company is qualified to apply if there has been promotion of:
    • the export of goods or the delivery of services outside Australia, where the goods for overseas distribution are either made in Australia, or if they are foreign-made, a net benefit flows into Australia from their sale; and/or
    • the export of certain IPR and know-how outside Australia, leading to manufacturing under licence in a selected foreign country. There can be costs involved to set up in business to collect income from licensed IPR.
  • Typically, the “eligible export promotion expenses” which are claimable include:
  • foreign representation expenses (e.g. hiring market research consultants, foreign attorneys),
  • promotion expenses (e.g. costs of marketing a product at trade fairs or conferences),
  • advertising expenses (e.g. preparation and printing of promotional literature), and
  • intellectual property expenses if undertaken “for the purpose of increasing the return on disposal of intellectual property…” where the return is in the form of royalties or licence fees. This category includes application for, and registration of, certain kinds of intellectual property, such as patents and trade marks).

C – Specific costs related to IPR which can be claimed

  • The cost of securing registered IPRs outside of Australia or New Zealand is eligible as part of an expense claim for an EMDG. These costs include patent attorney and Government fees for preparing and filing a new application, prosecution costs to obtain a registration, and Government fees for the subsequent renewal or extension of such an IPR.  Typical examples of registered IPRs include patents, trademarks and design registrations.
  • For example, the cost of filing of an international patent application under the Patent Cooperation Treaty (PCT), or an international registration of a trademark under the Madrid Protocol, as well as the subsequent stages of national phase entry and local prosecution for each national application, is eligible as part of an expense claim for an EMDG.
  • Eligible export promotion expenses” can be the cost of negotiating the broad terms of a royalty-bearing licence agreement with an overseas entity – for example, early stage legal advice which assists the parties to agree on terms, is eligible as part of an expense claim for an EMDG.
  • However, the subsequent legal cost for preparing a detailed licence agreement does not qualify as a promotion expense, and is not eligible as part of an expense claim for an EMDG.
  • There are some specific exclusions, such as product development costs, capital equipment costs, and routine sales costs which go beyond promotion.

D – How much can be claimed?

  • EMDG can reimburse up to 50 per cent of “eligible export promotion expenses” above the first $5,000 provided that the total of those expenses was at least $15,000 in a grant year. The grant year is the Australian financial year (July to June) in which the date of the claimed expenses fell.
  • Expenses incurred in a grant year must be claimed as part of the EMDG application submitted in the following financial year (except in the case of your first application, which can include expenses from the two financial years immediately before making the application).
  • Each applicant may receive a total EMDG grant of up to $150,000 per application (subject to available funds). Grants are regarded as assessable for income tax purposes, but no GST applies (nor is claimable).
  • A claim is capped at $50,000 for the specific sub-category of IPR expenses. All eligible applicants receive a grant, but it is paid in two tranches.  The first is paid normally about one week after Austrade audit and approve the application – for the last few years, this grant was paid on claims capped at $40,000.
  • The second tranche is normally paid after all applications have been assessed, in July of the following financial year. Austrade apportions the remaining available funds it has available across all of those eligible applicants who were claiming between $40,000 and the maximum allowable $50,000 of IPR expenses.  (N.B. the funds which were able to be paid out in 2016-2017 in this tranche represented only 22.2% of the total of the grant applications applied for in this bracket).

E – When do you need to file your application by?

  • You must complete and submit your online application for FY ending 30 June 2020, including the required evidence (invoice documents and payment receipts), after 1 July 2020 and before 1 December 2020, or you can use an approved EMDG Consultant who can late-lodge a claim on your behalf up to 1 March 2021.

For more information please contact your Adams Pluck professional, and they will be pleased to help.

You can read the Federal Government announcement here:

https://www.austrade.gov.au/Australian/Export/Export-Grants