Corporate Taxation and the Choice of Patent Location within Multinational Firms
37 Pages Posted: 9 Jan 2010
Date Written: December 2009
Abstract
Corporate patents are perceived to be the key profit-drivers in many multinational enterprises (MNEs). Moreover, as the transfer pricing process for royalty payments is often highly intransparent, they also constitute a major source of profit shifting opportunities between multinational entities. For both reasons, MNEs have an incentive to locate their patents at affiliates with a relatively small corporate tax rate. Our paper empirically tests for this relationship by exploiting a unique dataset which links information on patent applications to micro panel data for European MNEs. Our results suggest that the corporate tax rate (differential to other group members) indeed exerts a negative effect on the number of patents filed by a subsidiary. The effect is quantitatively large and robust against controlling for affiliate size. The findings prevail if we additionally account for royalty withholding taxes. Moreover, binding ‘Controlled Foreign Company’ rules tend to decrease the number of patent applications.
Keywords: corporate taxation, multinational enterprise, profit shifting
JEL Classification: H25, F23, H26, C33
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
By Bronwyn H. Hall, Jacques Mairesse, ...
-
By Bronwyn H. Hall, Jacques Mairesse, ...
-
One or Many Knowledge Production Functions? Mapping Innovative Activity Using Microdata
By Andrea Conte and Marco Vivarelli
-
By M. Ishaq Nadiri and Ingmar R. Prucha
-
On the Relationship between R&D and Productivity: A Treatment Effect Analysis
By Giuseppe Medda, Claudio A. Piga, ...
-
Costs and Benefits of Medical Research: A Case Study of Poliomyelitis