The Impact of Taxes on Bilateral Royalty Flows

31 Pages Posted: 12 Aug 2015

See all articles by Olena Dudar

Olena Dudar

ZEW – Leibniz Centre for European Economic Research

Christoph Spengel

Centre for European Economic Research (ZEW)

Johannes Voget

University of Mannheim - Accounting and Taxation

Date Written: July 1, 2015

Abstract

In 2013 the OECD introduced its Action Plan on base erosion and profit shifting (BEPS). One of the major concerns of this Plan is a strategic use of intangible assets as an instrument for profit shifting. The main purpose of this paper is to test whether multinational enterprises use intangibles as an important BEPS channel by empirically analysing the relationship between taxation and bilateral royalty flows. We employ the OECD data on 3,660 country-pairs for the time period of 1990-2012 and apply the Poisson pseudo-maximum likelihood estimator in a fixed-effects framework. The main results point to a negative impact of taxation on bilateral royalty flows. Moreover, we find that tax differentials, which represent a relative level of taxation in a recipient state compared to other potential royalty recipients, have a significant influence on royalty payments as well. For tax policy considerations, the paper provides various insights to the ongoing work on BEPS by the G20, the OECD, and the European Commission. For example, we find that such reform suggestions of the OECD Action Plan as an enforcement of the Nexus Approach, as well as an introduction of strict Controlled Foreign Company rules and transfer pricing regulations are likely to reduce international royalty flows.

Keywords: royalty, intangible assets, tax planning, corporate taxation

JEL Classification: H25, F23, H26, H3

Suggested Citation

Dudar, Olena and Spengel, Christoph and Voget, Johannes, The Impact of Taxes on Bilateral Royalty Flows (July 1, 2015). ZEW - Centre for European Economic Research Discussion Paper No. 15-052, Available at SSRN: https://ssrn.com/abstract=2641756 or http://dx.doi.org/10.2139/ssrn.2641756

Olena Dudar (Contact Author)

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

Johannes Voget

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

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