A Boxing Match: Can Intellectual Property Boxes Achieve Their Stated Goals?

Abstract

A patent box, innovation box, or intellectual property box (IP box) is a tax incentive under which revenues associated with some forms of intellectual property are taxed at a rate lower than general revenues. This paper discusses the common characteristics of IP boxes and how they correspond to stated goals. It presents a model of international tax competition, and shows that the highest expected tax revenue from mobile IP for a country hosting a great deal of fixed, non-IP capital comes from assigning a single tax rate to profits from both mobile and fixed capital — that is, from not implementing an IP box. As a research and development (R&D) credit, several examples show that the IP box is more easily manipulated than a traditional credit on R&D expenses.

Keywords: intellectual property, tax competition, research and development, patent boxes, IP boxes

JEL Classification: C72, H25, O38, O31