Tax Planning of R&D Intensive Multinationals

46 Pages Posted: 30 Jan 2015

See all articles by Jost H. Heckemeyer

Jost H. Heckemeyer

University of Kiel - Faculty of Economics and Social Sciences; ZEW – Leibniz Centre for European Economic Research

Katharina Richter

ZEW – Leibniz Centre for European Economic Research

Christoph Spengel

Centre for European Economic Research (ZEW)

Date Written: November 17, 2014

Abstract

The allocation of management and control in the business decision process finds expression in the coordination intensity between agents in the firm. We develop and test a theory, based on the organizational design literature, for the intensity in which the tax department strives to coordinate with managers from other business units in order to intervene in investment decisions. Our theoretical considerations predict that R&D intensity is an important determinant of the tax department's role. Using data from a confidential survey taken in 2012 of top financial and tax managers of very large multinational companies, representing 8% of business R&D spending in the OECD, we indeed find supporting evidence that in R&D intensive multinational firms the tax department operates more as a controller than as a manager. In particular, tax departments of R&D intensive firms make less tax planning effort, are less ambitious to minimize the tax burden of the firm, are later involved in the decision-making process of a new investment project, but are more likely to have a veto right in the decision on a new investment project as compared to less R&D intensive firms. Conditional on R&D intensity, however, the level of intangible assets in the firm is associated with more tax planning efforts and ambitions. Our results are statistically significant and robust towards several sensitivity checks.

Keywords: corporate taxation, organizational design, survey data

JEL Classification: H25, L22, M41

Suggested Citation

Heckemeyer, Jost H. and Richter, Katharina and Spengel, Christoph, Tax Planning of R&D Intensive Multinationals (November 17, 2014). ZEW - Centre for European Economic Research Discussion Paper No. 14-114, Available at SSRN: https://ssrn.com/abstract=2557353 or http://dx.doi.org/10.2139/ssrn.2557353

Jost H. Heckemeyer (Contact Author)

University of Kiel - Faculty of Economics and Social Sciences ( email )

Kiel
Germany

ZEW – Leibniz Centre for European Economic Research ( email )

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

Katharina Richter

ZEW – Leibniz Centre for European Economic Research ( email )

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

Christoph Spengel

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany

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