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Guidelines For Joint Ventures Applying For Grants


Overseas trading
July 1996

Exporters of know-how have been warned to take special care in drawing up joint venture contracts with overseas partners.

Failure to do so could imperil their rights under the current Export Market Development Grant (EMDG) scheme, according to Sydney lawyer Warren Cross, a specialist in international trade and intellectual property who has received a private policy ruling on the subject from Austrade.

Cross says the ruling contains break-through guidance for exporters of know-how who want to claim an export grant. Types of businesses which could be affected include advertising and public relations, insurance, real estate and the entire financial sector, including funds managers and investment services.

Computer software service companies will also be able to claim EMDG grants for the first time from July 1.

Cross says the ruling makes it clear that to qualify for a grant, there must be an obvious link between the know-how exported and the income it earns the Australian partner.

The Austrade repley said in part: ”Promotional expenditure would generally be considered eligible for a grant if there is a direct nexus between disposal of the right or know-how and some resultant export income paid by the joint venture. In most cases this income would be received by way of royalty, licence fee or success fee. Austrade’s understanding is that expenditure can be eligible only if it is primarily and principally for promoting income of this type.

Austrade cannot allow expenditure incurred primarily to increase the general profitability of an overseas business in which a claimant has taken an equity position. It is recognised that intellectual property exporters operate entirely different to goods exporters.”

Cross believes the only acceptable time to establish the link for grant eligibility is when the overseas joint venture contract is being drawn up.

“Merely having a shareholding in an overseas venture will not be sufficient to get your export grant”, he says.

“Intellectual property claims are failing because exporters aren’t taking the grant scheme into account at the time they document their overseas joint venture. That contract document is critical because it must state the formula which establishes the link between export and its income.

“If you want to qualify for your export grant – and at 50 cents in the dollar it can be up to $250,000 – you need to be aware that the qualifying rules are changing.

“You can claim a grant for up to 11 years but only if you have structured the joint-venture documents to reflect that you are bringing income-earnings know-how to the table. The simple fact that you receive share dividends from the export venture may not be sufficient.

“Know-how exports are comparatively new to the grants scheme. Commercial know-how, for example, now qualifies for a grant. Previously know-how had to be technological or scientific to qualify.”

The new rules are a big step forward in Austrade’s support for clever Australia – as well as for the export industry.

“It’s now saying that intellectual exports deserve the same support as for tangibles. Naturally it also has to protect the integrity of the grant scheme’s qualifying rules and standards, but the fact remains that you must begin your foreign venture with the end in sight to make sure your grant claim will be safe.