Intellectual Property Box Regimes: Effective Tax Rates and Tax Policy Considerations

60 Pages Posted: 30 Sep 2013 Last revised: 12 Sep 2018

See all articles by Lisa Evers

Lisa Evers

ZEW – Leibniz Centre for European Economic Research

Helen Miller

Institute for Fiscal Studies (IFS)

Christoph Spengel

Centre for European Economic Research (ZEW)

Date Written: November 15, 2013

Abstract

11 European countries now operate IP Box regimes that provide substantially reduced rates of corporate tax for income derived from important forms of intellectual property. We incorporate these policies into forward-looking measures of the cost of capital, effective marginal tax rates and effective average tax rates. We show that the treatment of expenses relating to IP income is particularly important in determining the effective tax burden. A key finding is that regimes that allow expenses to be deducted at the ordinary corporate income tax rate, as opposed to the IP Box tax rate, may result in negative effective average tax rates and can thereby provide a subsidy to unprofitable projects. We assess the specific design features of different regimes against the possible policy aim of improving the incentives to undertake R&D investment in a country. While some countries have tried to tie the policy to real activities, others have designed a policy targeted at the income streams associated with intellectual property. A key concern is the role that IP Boxes may play in increased, and possibly harmful, tax competition between European countries.

Keywords: corporate taxation, effective tax rate, innovation, tax incentive patent box, innovation box, license box, tax competition

JEL Classification: H25, H32, H87, K34, O38

Suggested Citation

Evers, Lisa and Miller, Helen and Spengel, Christoph, Intellectual Property Box Regimes: Effective Tax Rates and Tax Policy Considerations (November 15, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 13-070, Available at SSRN: https://ssrn.com/abstract=2333610 or http://dx.doi.org/10.2139/ssrn.2333610

Lisa Evers (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Helen Miller

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Christoph Spengel

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany

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