Private ruling: Income Tax: Tax Incentive for Early Stage Investors
Date of advice: 7 November 2017
Published: March 2018
Ruling period: February 20YY to 30 June 20YY
Date scheme commenced: February 20YY

Ruling: Q1: Does the Company meet the criteria of an Early Stage Innovation Company (ESIC) under subsection 360-40(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: 1. The Company was incorporated in Australia and registered in the Australian Business Register during the year ending 30 June 20YY. Its equity interests are not listed for quotation in the official list of any stock exchange. 2. The Company has no subsidiaries and had expenses of less than $1 million, and assessable income of less than $200,000 in the previous income year, ie the year ended 30 June 20XX. 3. The Company is developing a digital based finance platform/system (‘the Platform’), using the latest available technology, which aims to significantly improve operational efficiencies of funding financial products. 4. The new software solution aims to provide a simple platform for investors to invest, as well as provide investors with a higher yield than traditional financial products. 5. The Company believes that the unique and efficient ‘direct-to-market’ funding model that its new software will provide, will position it to be able to offer better rates and returns to customers and investors. 6. The Company has identified its immediate addressable market as the Australian market, with a view to expanding into the global market (initially in countries with similar laws, legislation and market practices as well as similarities in banking regulation). 7. The founders of the Company are all directors of the company, and all hold shares in the company via companies which they have ownership interests in. 8. Each founder has entered into a Founder Service Agreement (‘FSA’) with the Company that outlines the services each founder must provide and the terms and conditions of the agreement. Under the agreements, each of the founders is tasked with specific responsibilities which reflect their ability and experience. 9. All of the founders of the Company have extensive experience in the finance industry. 10. The Company was incorporated during the year ending 30 June 20YY, and due to its infancy does not currently own or hold formal intellectual property under regimes which require registration in relation to the products and services it will develop. The Company has applied for trademark protection and will be the owner of the intellectual property relating to the product that it develops when granted. 11. The preliminary work undertaken by the Company has been in relation to background market research, obtaining the relevant financing for its activities and building the required networks. As the project progresses and the software solution is developed, the Company plans to assess its ability to register for intellectual protection property regimes such as the Patents Act (Cth) and the Designs Act 2003 (Cth). 12. The Company states that due to the infancy of the work to date, it is not possible to definitively assess whether protection will be available under these regimes, however, it is confident that copyright, patent and design protection will be available and will protect its intellectual property at the earliest available opportunity as soon as it has developed substantive work to be protected. 13. The Company believes that certain aspects of its software solution (eg the blueprint) will naturally attract intellectual property protection under regimes such as relevant sections of the Copyright Act 1968 (Cth). 14. The Company holds the exclusive licence to a new financial product, which will be the Company’s flagship product. 15. The Company will use state of the art credit risk technology to support its operations. 16. The Company have highlighted some of the key differentiators and competitive advantages of its platform/system to alternate systems as being: ● The Company is developing new software using the latest available technology that significantly improves operational efficiencies, by reducing the reliance on third parties. ● The new software solution provides a simple platform for investors to invest and enables the Company to offer investors a higher yield than traditional financial products. ● Investor transactions are digitally codified, validated and automated and are completely transparent and visible to investors. ● The new software solution will provide investors with improved visibility of the assets in which they are investing; including cryptographically-secured access to contracts, documentation, real-time loan data, and risk analytics. This differs from current practices, which typically do not provide this much information to investors. ● The products offered to investors by the Company enables the risk of direct investment to be diversified across many customers. This allows investors to invest like a bank, by investing directly in financial products, with all the customer information available to the bank, but without taking on any direct obligations to the customer. ● The new software solution is the basis of the Company’s unique and efficient ‘direct-to-market’ funding model: ● By providing improved trust and transparency to investors, the new software reduces the reliance on third party intermediaries. ● By providing the benefits of improved security, efficiency and automation to the process, the new software removes the need for many manual back-office operations. ● The efficient operating model that the new software provides means that the Company is positioned to share the savings of a lower cost base; offering better rates and returns to customers and investors. Commercialisation strategy 17. Since incorporating during the year ending 30 June 20YY, the Company has undertaken significant background research and literature studies to understand the existing state of the art, the opportunities which are available and potential global competitor offerings. 18. As at June 20YY, the Company has also undertaken preliminary planning to develop the concept design of the technology, formulate and test the relevant hypotheses and evaluate the different market opportunities for the new technology. 19. The Company has engaged a third-party developer and incubator to assist the design and development of the new software. As part of this next phase, the Company will dedicate substantial internal resources and expertise to the design and implementation of the new software. 20. The Company plans to launch a Minimum Viable Product (‘MVP’) of the new software during the year ending 30 June 20ZZ. 21. The Company plans to launch a ‘Pilot Funding Program’ during the following income year .The purpose of the Pilot Funding Program is to obtain funds initially at limited scale with trusted participants; allowing the Company to trial new products, integrate processes, perfect the technology and implement operational support before ramping-up their operations to achieve their scale targets. 22. The Company is currently marketing to Australian institutional investors and specialist banking partners to secure financing for the Pilot Funding Program. 23. The Company is currently putting in place the operational framework to conduct business: ● The Company has engaged a management systems provider to license its customer management platform. This system will be hosted, managed and operated by the Company. ● The Company is currently developing and finalising its compliance and risk management framework, including; obtaining the relevant licenses, registrations and insurance; implementing credit policies, product documentation and operational procedures. Revenue model 24. The Company forecasts that it will generate income via a revenue model which is premised on charging management fees. This will ensure that minimal operating costs are incurred as the product is scaled up. In addition, the Company has also considered a potential revenue model through investment revenue. Total addressable market 25. As previously stated, the Company’s immediate addressable market is the Australian market, with a view to expanding into the global market (initially in countries with similar laws, legislations and market practices as well as similarities in banking regulation). The technology base will be developed in a manner where minimal cost will be required to scale up into a global offering. 26. The Company’s research findings are that the size of its Australian target market is very substantial and is currently undergoing significant growth. 27. The Company will offer selected financial groups with ‘white-label’ product, which will allow the group to brand the financial product as well as ‘own’ and manage the customer. 28. The Company has partnered with a number of established financial networks for its Pilot Funding Program (‘PFP’). 29. The PFP will allow the partner to trial new products and integrate processes, and the Company to perfect technology, product and operational support, prior to scaling up. Information provided 30. The Company has provided information in a number of documents in relation to the Company and the Platform. 31. We have referred to the relevant information within these documents in applying the relevant tests to your circumstances. 32. You propose to issue new shares in the Company to various investors to assist in funding the continued development and commercialisation of the Platform.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 360-A | Income Tax Assessment Act 1997 section 360-40 | Income Tax Assessment Act 1997 section 360-45 Further issues for you to consider | N/A

Reasons for decision: Summary: All legislative references are to the ITAA 1997 unless otherwise indicated. | Summary: The Company meets the eligibility requirements of, an ESIC under, subsection 360-40(1). | Detailed Reasoning - Qualifying Early Stage Innovation Company: 1. Subsection 360-40(1) outlines the criteria required for a company to qualify as an Early Stage Innovation Company (ESIC) at a particular time in an income year. This time is referred to as the test time. The criteria are based on a series of tests to identify if the company is at an early stage of its development and it is developing new or significantly improved innovations to generate an economic return. | Detailed Reasoning - ‘The early stage test’: 2. The early stage test requirements are outlined in detail within paragraphs 360-40(1)(a) to (d). | Detailed Reasoning - Incorporation or Registration – paragraph 360-40(1)(a): 3. To meet the requirement in paragraph 360-40(1)(a), at a particular time (the test time) in an income year (the current year) the company must have been either: i. incorporated in Australia within the last three income years (the latest being the current year); or ii. incorporated in Australia within the last six income years (the latest being the current year), and across the last three of those income years the company and its 100% subsidiaries incurred total expenses of $1 million or less; or iii. registered in the Australian Business Register (ABR) within the last three income years (the latest being the current year). 4. The term ‘current year’ is defined in subsection 360-40(1) with reference to the ‘test time’; the ‘current year’ being the income year in which the company issues shares to the investor. 5. A company that does not meet any of these conditions will not qualify as an ESIC. | Detailed Reasoning - Total expenses - paragraph 360-40(1)(b): 6. To meet the requirement in paragraph 360-40(1)(b), the company and its 100% subsidiaries must have incurred total expenses of $1 million or less in the income year before the current year. | Detailed Reasoning - Assessable income - paragraph 360-40(1)(c): 7. To meet the requirement in paragraph 360-40(1)(c), the company and its 100% subsidiaries must have derived total assessable income of $200,000 or less in the income year before the current year. | Detailed Reasoning - No stock exchange listing - paragraph 360-40(1)(d): 8. To meet the requirement in paragraph 360-40(1)(d), the company must not be listed on any stock exchange in Australia or a foreign country. | Detailed Reasoning - Innovation tests: 9. If the company satisfies the early stage test, the company must also satisfy one of two innovation tests: the objective (100 point) test or the principles-based test. | Detailed Reasoning - ‘100 point test’ – paragraph 360-40(1)(e) and section 360-45: 10. To satisfy the 100 point test the company must obtain at least 100 points by meeting the innovation criteria in the table within section 360-45. The criteria are tested at a time immediately after the relevant shares are issued. If a company satisfies this test it does not need to satisfy the principles-based test. | Detailed Reasoning - ‘Principles-based test’ – subparagraphs 360-40(1)(e)(i) to (iv): 11. To satisfy the principles-based test, the company must meet five requirements in paragraph 360-40(1)(e). This is tested at a time immediately after the relevant new shares are issued to the investor. 12. The company can demonstrate that it meets each requirement through existing documentation such as a business plan, commercialisation strategy, competition analysis or other company documents. The company must be able to show that tangible steps have been or will be taken in relation to each of the requirements. 13. The five requirements of the principles-based test, as outlined in paragraph 360-40(1)(e) are: i. the company must be genuinely focused on developing one or more new or significantly improved innovations for commercialisation ii. the business relating to that innovation must have a high growth potential iii. the company must demonstrate that it has the potential to be able to successfully scale up the business relating to the innovation iv. the company must demonstrate that it has the potential to be able to address a broader than local market, including global markets, through that business, and v. the company must demonstrate that it has the potential to be able to have competitive advantages for that business. | Detailed Reasoning - Developing new or significantly improved innovations for commercialisation: 14. For the purposes of Subdivision 360-A, the Explanatory Memorandum to the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 (‘EM’) provides the following at paragraph 1.76 in relation to the definition of innovation: “Implicit in the definition of innovation is the requirement that the company is developing a new or significantly improved type of innovation such as a product, process, service, marketing or organisational method. This list of various types of innovations provides flexibility for innovation companies and is adaptable to current and future innovations. The Oslo Manual, published by the Organisation for Economic Co-operation and Development (OECD) provides a description of these different types of innovations…” 15. The innovation being developed by the company must either be new or significantly improved for an applicable addressable market. The company’s addressable market is the revenue opportunity or market demand arising from the innovation or the related business. The addressable market must be objective and realistic. 16. Improvements must be significant in nature to meet this requirement. Customising existing products or minor changes resulting from software updates, pricing strategies or seasonal changes are examples of improvements that would not be considered significant. 17. The OECD Oslo Manual defines innovations as significant changes, with the intention of distinguishing significant changes from routine minor changes. However, it is important to recognise that an innovation can also consist of a series of smaller incremental changes that together constitute a significant change. 18. In discussing services innovation activity, paragraph 111 of the OECD Oslo Manual states, “Innovation activity in services also tends to be a continuous process, consisting of a series of incremental changes in products and processes. This may occasionally complicate the identification of innovations in services in terms of single events, i.e. as the implementation of a significant change in products, processes or other methods.” 19. The OECD Oslo Manual, in relation to defining innovative services, states at paragraph 161 that “innovations in services can include significant improvements in how they are provided (for example, in terms of their efficiency or speed), the addition of new functions or characteristics to existing services, or the introduction of entirely new services.” 20. The company must be genuinely focused on developing the innovation for a commercial purpose in order to generate economic value and revenue for the company. This requirement draws the distinction between simply having an idea and commercialising an idea. 21. ‘Commercialisation’ includes a range of activities that involve the implementation or sale of a new or significantly improved innovation that will directly lead to the generation of economic value for the company. | Detailed Reasoning - High growth potential: 22. The company must be able to demonstrate that it has the potential for high growth within a broad addressable market. This refers to the company’s ability to rapidly expand its business. Companies that are limited to supplying local customers will not meet this requirement. | Detailed Reasoning - Scalability: 23. The company must be able to demonstrate that it has the potential to successfully scale up the business. The company must have operating leverage, where as it increases its market share or enters into new markets, its existing revenues can be multiplied with a reduced or minimal increase in operating costs per unit. | Detailed Reasoning - Broader than local market: 24. The company must be able to demonstrate that it has the potential to address a market that is broader than a local city, area or region. The company does not need to have a serviceable market at a national, multinational or global scale at the test time. However, it does need to show that the business is capable of addressing a market that is broader than a local market and that the business can be adapted to a broader scale in the future. | Detailed Reasoning - Competitive advantages: 25. The company must be able to demonstrate that it has the potential to have competitive advantages, such as a cost or differential advantage over its competitors which are sustainable for the business as it expands. The company can analyse what competitors in the market offer, and consider whether the company has a differentiating advantage that would allow it to outperform these competitors. | Detailed Reasoning - Application to your circumstances: Test time 26. For the purposes of this ruling, the test time for determining if the Company is a qualifying ESIC will be a particular date during the income year ending 30 June 20YY. Current year 27. For the purposes of subsection 360-40(1), the current year will be the year ending 30 June 20YY (the 20YY income year). For clarity, in relation to particular requirements within subsection 360-40(1), the last three income years will include the years ending 30 June 20YY, 20XX and 20WW, and the income year before the current year will be the year ending 30 June 20XX (the 20XX income year). | Detailed Reasoning - Early stage test: Incorporation or Registration – paragraph 360-40(1)(a) 28. As the Company was incorporated and registered during the year ending 30 June 20YY, which is within the last 3 income years, subparagraphs 360-40(1)(a)(i) and (iii) are satisfied. Total expenses – paragraph 360-40(1)(b) 29. As the Company had expenses less than $1 million in the prior income year, and it did not have any subsidiaries, paragraph 360-40(1)(b) is satisfied. Assessable income – paragraph 360-40(1)(c) 30. As the Company’s assessable income for the prior income year is less than $200,000, and it did not have any subsidiaries, paragraph 360-40(1)(c) is satisfied. No stock exchange listing – paragraph 360-40(1)(d) 31. As the Company is privately owned and is not listed on any stock exchange in Australia or a foreign country, subparagraph 360-40(1)(d) is satisfied. | Detailed Reasoning - Conclusion on early stage test: 32. The Company will satisfy the early stage test for the entire 20YY income year, as each of the requirements within paragraphs 360-40(1)(a) to (d) have been satisfied. | Detailed Reasoning - 100 point test: 33. The Company has not provided any evidence of satisfying the 100 point test under section 360-45 for the year ending 30 June 20YY. For the Company to be a qualifying ESIC it will need to satisfy the principles-based test. | Detailed Reasoning - Principles based test: Developing new or significantly improved innovations for commercialisation – subparagraph 360-40(1)(e)(i) 34. The Company is developing a digital based finance platform/system (‘the Platform’), using the latest available technology, which aims to significantly improve operational efficiencies of funding financial products. 35. The Company believes that the unique and efficient ‘direct-to-market’ funding model that its new software will provide, will position it to be able to offer better rates and returns to customers and investors. 36. Although it will initially be targeted at the Australian market, the Company’s finance platform has been identified as having a wider international/global addressable market. 37. The Company’s research indicates that it will be the first company/entity to offer such a product. New, or significantly improved, products, processes, services or marketing or organisational methods – subparagraph 360-40(1)(e)(i) 38. The Company have highlighted the key differentiators and competitive advantages of its platform/system to alternate systems as being: ● The Company is developing new software using the latest available technology that significantly improves operational efficiencies, by reducing the reliance on third parties. ● The new software solution provides a simple platform for investors to invest and enables the Company to offer investors a higher yield than traditional products. ● Investor transactions are digitally codified, validated and automated and are completely transparent and visible to investors. ● The new software solution will provide investors with improved visibility of the assets in which they are investing; including cryptographically-secured access to contracts, documentation, real-time data, and risk analytics. This differs from current practices, which typically do not provide this much information to investors. ● The products offered to investors by the Company enables the risk of direct investment to be diversified across many customers. This allows investors to invest like a bank, by investing directly in financial products, with all the customer information available to the bank, but without taking on any direct obligations to the customer. ● The new software solution is the basis of the Company’s unique and efficient ‘direct-to-market’ funding model: ● By providing improved trust and transparency to investors, the new software reduces the reliance on third party intermediaries. ● By providing the benefits of improved security, efficiency and automation to the process, the new software removes the need for many manual back-office operations. ● The efficient operating model that the new software provides means that the Company is positioned to share the savings of a lower cost base; offering better rates and returns to customers and investors. Genuinely focussed on developing for commercialisation – subparagraph 360-40(1)(e)(i) 39. Since incorporating during the year ending 30 June 20YY, the Company has undertaken significant background research and literature studies to understand the existing state of the art, the opportunities which are available and potential global competitor offerings. 40. As at June 20YY, the Company has also undertaken preliminary planning to develop the concept design of the technology, formulate and test the relevant hypotheses and evaluate the different market opportunities for the new technology. 41. The Company has engaged a third-party developer and incubator to assist the design and development of the new software. As part of this next phase, the Company will dedicate substantial internal resources and expertise to the design and implementation of the new software. 42. The Company plans to launch a Minimum Viable Product (‘MVP’) of the new software during the year ending 30 June 20ZZ. 43. The Company plans to launch a ‘Pilot Funding Program’ during the following income year. The purpose of the Pilot Funding Program is to fund loans initially at limited scale with trusted participants; allowing the Company to trial new products, integrate processes, perfect the technology and implement operational support before ramping-up their operations to achieve their scale targets. 44. The Company is currently marketing to Australian institutional investors and specialist banking partners to secure financing for the Pilot Funding Program. 45. The Company is currently putting in place the operational framework to conduct business: ● The Company has engaged a management systems provider to license its customer loan management platform. This system will be hosted, managed and operated by the Company. ● The Company is currently developing and finalising its compliance and risk management framework, including; obtaining the relevant licenses, registrations and insurance; implementing credit policies, product documentation and operational procedures. Revenue model 46. The Company forecasts that it will generate income via a revenue model which is premised on charging management fees. This will ensure that minimal operating costs are incurred as the product is scaled up. In addition, the Company has also considered a potential revenue model through investment revenue. Total addressable market 47. The Company’s immediate addressable market is the Australian market, with a view to expanding into the global market (initially in countries with similar laws, legislations and market practices as well as similarities in banking regulation). The technology base will be developed in a manner where minimal cost will be required to scale up into a global offering. 48. The Company’s research findings are that the size of its Australian target market is very substantial and is currently undergoing significant growth. 49. The Company will offer selected financial groups with ‘white-label’ product, which will allow the group to brand the finance as well as ‘own’ and manage the customer. 50. The Company has partnered with a number of established financial networks for its Pilot Funding Program (‘PFP’). 51. The PFP will allow the broker partner to trial new products and integrate processes, and the Company to perfect technology, product and operational support, prior to scaling up. Conclusion on subparagraph 360-40(1)(e)(i) 52. The Company is genuinely focussed on developing the Platform for a commercial purpose. The Platform will be a significantly improved product/service compared to existing products/services available within the Company’s target market. 53. Therefore, subparagraph 360-40(1)(e)(i) will be satisfied for the time period from the date the Company was incorporated and registered in the Australian Business Register until 30 June 20YY. Once the Platform has been fully developed, the Company will no longer be ‘developing’ the product for commercialisation and subparagraph 360-40((1)(e)(i) will no longer be satisfied. High growth potential – subparagraph 360-40(1)(e)(ii) 54. The Company’s research indicates that: ● There is existing and increasing demand within the industry for a new entrant to provide the industry with the trust, transparency and consistency that lacks in current banking relationships. ● There is existing demand from institutional and capital markets investors for a higher yielding investment product that provides more direct and transparent access to finance operations. 55. The Company’s research also indicates that in the current low interest rate environment, traditional sources of high quality fixed income products may no longer be sufficient to maintain real return requirements. And that a singular focus on picking the highest-yielding investment products may leave investors vulnerable to significant downside risks or market shocks. 56. Through the development of its new software solution, the Company believes that it is uniquely positioned to lead the market in offering investors a new class of investment products that meet investor needs for diversified high yielding investments. 57. Through its commercialisation strategy, the Company intends to distribute its products through select groups of finance companies. 58. The Company will offer selected financial groups with ‘white-label’ product, which will allow the group to brand the finance as well as ‘own’ and manage the customer. 59. The Company forecasts that it will generate income via a revenue model which is premised on charging management fees. In addition, the Company has also considered a potential revenue model through investment revenue. 60. If the Company’s commercialisation strategy is successful, its market analysis indicates that it will be able to rapidly expand its activities / generation of revenue first within the Australian market, and then within international global markets. 61. Therefore, subparagraph 360-40(1)(e)(ii) will be satisfied. Scalability – subparagraph 360-40(1)(e)(iii) 62. The Company contend that the following factors will contribute to their ability to successfully scale up their business: | Detailed Reasoning - The technology is scalable for volume: a. This simple investment platform significantly reduces the complexity of existing programs within the industry. This means that the legal documentation required is significantly reduced, is standardised and is digitised so that it can be replicated at low cost. b. This means that the new software solution will allow the Company to create investment products more frequently and at lower cost than its competitors. c. As demand for the Company’s product and services increases, the new software solution will allow the Company to scale up its business quickly and at low cost. | Detailed Reasoning - Equity Capital and Marginal Operating Costs: a. The Company’s revenue model of charging management fees means that the Company’s customer servicing and IT resources can be increased as volume increases; ie operating costs are marginal. b. Further, as the Company achieves its critical business development milestones, it has the potential to raise further funding by way of equity capital, which will be used to scale the business. 63. Projections provided by the Company, based on its potential revenue model, indicate that by the year ending 30 June 2020 they will be able to generate significant monthly Long-Term Fee Revenue (LTFR) from management fees, and have earned substantial investment revenue. 64. Given that the Platform has application both domestically and globally, it is expected that the Company has the potential to successfully scale up its business. 65. The Company’s service is based on an internet based digital finance platform/system, which they believe can be quickly scaled up at low cost. The Company believes that it will be able to generate increased revenue with a less than direct proportionate increase in operating costs. This operating leverage affords the Company the potential to successfully scale up its business. Therefore, subparagraph 360-40(1)(e)(iii) will be satisfied. Broader than local market- subparagraph 360-40(1)(e)(iv) 66. The Company will initially target its marketing of the Platform at the Australian market. However, the Company has identified its ultimate market as being both the Australian market and global markets. Its longer term marketing plan includes expanding into the global market: a. initially in countries with similar laws, legislation and market practices as well as similarities in banking legislation b. ultimately in developing countries which are experiencing high growth within the Company’s target market. 67. The Platform has the potential for worldwide application within the worldwide finance industry. Thus, the ultimate addressable market is on a global scale and is not confined to a local city, area or region. 68. The Company has demonstrated the Platform has the potential to address a broader market than just the local market, including international/global markets. Therefore, subparagraph 360-40(1)(e)(iv) will be satisfied. Competitive advantages – subparagraph 360-40(1)(e)(v) 69. The Company summarises the differentiating features of its platform/system as follows: | Detailed Reasoning - No directly comparable companies: The Company is not aware of any direct competitors to its direct-to market funding model within its target market. The benefits and price advantage offered by the new software solution will therefore be unique to the Company, difficult to replicate and it is likely that the Company will have a first mover or early mover advantage. | Detailed Reasoning - Personnel knowledge and relationships: The underlying intellectual property and know-how held by the founders of the Company (which are proprietary in nature and not shared with any external parties), the market relationships provided by the founders of the Company and the recruited personnel, and the business relationships that have been formed, provide a set of significant intangible assets to the company. This presents a high barrier to entry for new competitors to emerge quickly and enter the market at similar scale, and without significant time and consuming work, any competitors would not have the effective know-how or the relationships to begin competing with the Company. Whilst the company was recently incorporated and is currently in the planning phase, the company will assess the potential to lodge applications for intellectual property protection as designs and prototypes are developed and built. The Company is continuing its extensive marketing and PR campaign and is forming relationships in order to consolidate its first/early-mover market position. This strong position forms a base to defend against any direct competitors that may emerge. The Company plans to continue to innovate, to be agile and strive to improve upon its designed products and services in order to maintain its competitive advantage. | Detailed Reasoning - Exclusive products: The Company holds the exclusive licence to an innovative new finance product. The new loan product involves complex computations and is therefore assisted by the transparency and security offered by the new software solution. Exclusive access to the intellectual property rights of the new product represent a further competitive advantage for the Company over its competitors. 70. Therefore, as the Platform is the first platform/system with these differentiating features, it is likely that the Company will have the first mover advantage. The Company has demonstrated the potential for the Platform to have competitive advantages within the Company’s target market, satisfying subparagraph 360-40(1)(e)(v). | Detailed Reasoning - Conclusion on principles based test: 71. The Company satisfies the principles based test as it satisfies the requirements within subparagraphs 360-40(1)(e)(i) to (v) for the period commencing from the date of its incorporation and registration in the Australian Business Register until 30 June 20YY. Conclusion 72. The Company meets the eligibility criteria of an ESIC under section 360-40 for the period commencing from the date of its incorporation and registration in the Australian Business Register until 30 June 20YY.