Spillover from the Haven: Cross-Border Externalities of Patent Box Regimes Within Multinational Firms

IEB Working Paper N. 2017/15

55 Pages Posted: 26 Dec 2017  

Thomas Schwab

University of Mannheim; Centre for European Economic Research (ZEW); WU Vienna

Maximilian Todtenhaupt

University of Mannheim; Centre for European Economic Research (ZEW) - Corporate Taxation and Public Finance Research

Multiple version iconThere are 2 versions of this paper

Date Written: November 9, 2017

Abstract

In this paper, we analyze the cross-border effects of patent box regimes that reduce the tax rate on income from intellectual property. We argue that the tax cut in one location of a multinational enterprise may reduce the user cost of capital for the whole group if profit shifting is possible. This spillover effect of the foreign tax cut raises domestic R&D investment. We test this mechanism by combining information on patents, firm ownership and specific characteristics of patent box regimes. Empirical results from a micro-level analysis suggest that patent box regimes without a nexus requirement (patent havens) induce positive cross-border externalities on R&D activity within multinational groups. For firms with cross-border links, the implementation of a foreign patent haven increases domestic research activity by about 2.3% per implied tax rate differential. Furthermore, our findings suggest that patent boxes generate negative spillovers on average patent quality. This has important implications for international tax policy and the evaluation of patent box regimes.

Keywords: Patent box, spillover, corporate taxation, innovation

JEL Classification: F23, H25, O31

Suggested Citation

Schwab, Thomas and Todtenhaupt, Maximilian, Spillover from the Haven: Cross-Border Externalities of Patent Box Regimes Within Multinational Firms (November 9, 2017). IEB Working Paper N. 2017/15. Available at SSRN: https://ssrn.com/abstract=3091220 or http://dx.doi.org/10.2139/ssrn.3091220

Centre for European Economic Research (ZEW) ( email )

Mannheim
Germany
+49 621 1235 380 (Phone)

WU Vienna

Welthandelsplatz 1
Wien, 1020
Austria

Maximilian Todtenhaupt

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Centre for European Economic Research (ZEW) - Corporate Taxation and Public Finance Research ( email )

United States

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