Investment Success Story
Citrix Labs benefits from R&D tax incentive and Australia’s Asia-Pacific ties
September 2013
The Sydney-based headquarters of the Silicon Valley technology developer’s applied R&D organisation is reaping the benefits of changes to the Australian Government’s research and development (R&D) tax incentive.
The California-based parent, Citrix Systems, is a world leader in developing technology that provides people with access to their software applications and data wherever they might be. It works across a range of connections, such as private data networks or fixed or wireless Internet connections, and can deliver to almost any computing device.
Australia has been home to Citrix Systems’ Australia and New Zealand headquarters since 1997 when Citrix bought one of its existing Australian original equipment manufacturing (OEM) partners, Datapac Australasia.
Martin Duursma was a founder and VP of Engineering at Datapac when Citrix Systems acquired it. Today he chairs the CTO Office for Citrix worldwide and is the vice president of Citrix Labs.
Mr Duursma says the most recent changes to the R&D tax incentive have made it possible for multinational companies to claim the tax credit by changing the definition of R&D as well as the definition of sales activity.
“The Government’s changes to the program over the last couple of years have made it possible for multinationals to claim,” he says, adding recent revisions to the definition of intellectual property (IP) not only allow offshore-headquartered companies to claim but make it attractive to do so.
The R&D tax incentive has two components. One is a 45 per cent refundable tax offset to eligible entities with an aggregated turnover of less than A$20 million per year. The second is a non-refundable 40 per cent tax offset to eligible larger entities, such as Citrix.
First year is a challenge
The parent company spends about A$7 million a year on its R&D team. In the last full financial year, it realised A$700,000 from the R&D tax incentive.
Documentation requirements are strict but once the systems are in place, the record-keeping becomes easier, Mr Duursma says.
“The first year is the hardest,” he says.
“The first year, we had an accountant on site for a week. Then he went back to his own office and worked on it for a week. This year, two accountants spent the day in our office.” “We spent about A$40,000 on accountants this year,” Mr Duursma says.
Also, the tax incentive may seem relatively small in the first year.
However, he notes that expenditure is virtually steady from year to year while tax credits grow, and rigorous record-keeping helps smooth the application process from year to year.
Mr Duursma welcomes government initiatives to educate people on the R&D tax incentive, including workshops run by the Australian Trade Commission (Austrade), given the initial complexity of the application process.
“It’s often difficult for people to navigate the different options they could take advantage of. I’m talking about start-ups all the way to multinationals,” he says.
“There’s quite a wide variety so it’s important for the Government to continue its education efforts on what programs are available.”
Expansion into Asia-Pacific
However, when Citrix Systems bought Datapac 16 years ago, it was not looking for a tax break. Citrix wanted the Australian company’s R&D and distribution capabilities, but most of all, it wanted an Asia-Pacific presence.
“Citrix knew they wanted to set up in this part of the world and knew it had to grow its Asian marketplace,” he says.
Because Citrix and Datapac had a relationship, Citrix realised Datapac’s combination of sales and marketing support and R&D was a perfect fit.
“With Citrix needing to expand to the Asia-Pacific, they thought, ‘Let’s acquire Datapac and use them as the springboard, the genesis of the company having a bigger presence in the Asia-Pacific region’.”
At the time, Citrix was a small company with about 200 employees and had just floated on the stock market.
“I don’t think it was a plan. It was more opportunistic: Australian company, doing good things with Citrix already, makes a lot of sense, why not acquire them and use them as the starting point?”
Mr Duursma says the move has paid off.
“It’s been a huge benefit here for the local sales team,” he says of the company’s expansion into the Asia-Pacific region.
“Being able to dialogue directly with enterprise customers, whether it’s government departments or large financial institutions, for example, when they see that Citrix has not just a sales presence here in Australia but a commitment to research and development, with forward-looking development labs and a suite of offices headquartered here in Australia, that’s a very strong and positive sales message.”
Innovate or perish
Citrix Labs has an R&D team of about 35 people at its Sydney headquarters, up from four in its days as Datapac.
Mr Duursma says that keeping the Citrix Labs group at this size enables it to remain nimble when addressing customer needs, not only providing expertise back to Citrix, but also to external partners and customers. Most importantly, it helps the company weather downturns.
“Whenever there’s a contraction in the business climate, the first thing that often goes is the remote location,” he says.
“In the technology role, it’s critical to have good connections back into the mothership and to be always showing value and innovation. If you become fat and happy or complacent, that’s when your right to continue in the innovation ecosystem is called into question.”
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