Corporate Taxes and the Location of Intellectual Property

46 Pages Posted: 16 Jun 2011

See all articles by Rachel Griffith

Rachel Griffith

Institute for Fiscal Studies (IFS); University of Manchester; Centre for Economic Policy Research (CEPR)

Helen Miller

Institute for Fiscal Studies (IFS)

Martin O'Connell

Institute for Fiscal Studies (IFS)

Date Written: June 2011

Abstract

The literature suggests that tax rates on mobile activities should fall to zero. Intellectual property is very mobile and has grown in importance. Firms can use intellectual property to shift income offshore and reduce their corporate income tax liability. Yet most intellectual property is held in relatively high tax countries. We estimate the impact of corporate taxes on where firms hold patents. We consider domestic and international taxes, and control for the potential non-tax costs and benefits associated with different locations. We allow heterogeneity across industries, firm size and, most importantly, unobservable patent specific heterogeneity in the responsiveness of patent location to tax. Our results suggest that, on average, corporate tax rates have a negative impact on the likelihood of a firm choosing a location, and that there is substantial heterogeneity in responses. We simulate the impact of recent reforms that apply a lower tax rate to patent income, finding that they attract patent income but result in losses in government revenues.

Keywords: corporate tax, intellectual property, multinational firms, Patent Box

JEL Classification: F21, F23, H3, O3

Suggested Citation

Griffith, Rachel and Miller, Helen and O'Connell, Martin, Corporate Taxes and the Location of Intellectual Property (June 2011). CEPR Discussion Paper No. DP8424. Available at SSRN: https://ssrn.com/abstract=1865574

Rachel Griffith (Contact Author)

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London WC1E 7AE
United Kingdom
+44 20 7291 4800 (Phone)
+44 20 7323 4780 (Fax)

University of Manchester ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

HOME PAGE: http://www.ifs.org.uk/people/profile?id=37

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Helen Miller

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Martin O'Connell

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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