Multinational Taxation and R&D Investments

The Accounting Review, July 2012

Posted: 25 Mar 2010 Last revised: 29 Feb 2012

See all articles by Anja De Waegenaere

Anja De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER

Richard C. Sansing

Tuck School of Business at Dartmouth

J. Wielhouwer

VU University Amsterdam

Date Written: February 28, 2012

Abstract

This study examines the effects of taxation on the incentives of multinational firms to develop and use intellectual property. We model optimal investment and production decisions by firms that engage in a patent race by making R&D investments. We investigate how taxes affect the level and efficiency of R&D investments, and how these effects depend on whether the winner of the patent race uses it by producing in the country in which the patent was developed (the domestic country) or in a foreign country. A higher domestic tax rate decreases investment in R&D if production occurs in the domestic country, but increases investment in R&D if production occurs in the foreign country. The present value of domestic tax revenues is strictly positive if production occurs in the domestic country, but is weakly negative if production occurs in the foreign country.

Keywords: Multinational taxation, R&D investment, Transfer pricing, Patent races

JEL Classification: H21, H25, H32, O31

Suggested Citation

De Waegenaere, Anja M.B. and Sansing, Richard C. and Wielhouwer, Jacco L., Multinational Taxation and R&D Investments (February 28, 2012). The Accounting Review, July 2012. Available at SSRN: https://ssrn.com/abstract=1574853 or http://dx.doi.org/10.2139/ssrn.1574853

Anja M.B. De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Richard C. Sansing (Contact Author)

Tuck School of Business at Dartmouth ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-0392 (Phone)
603-646-1308 (Fax)

Jacco L. Wielhouwer

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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