The Effect of Intellectual Property Boxes on Innovative Activity & Effective Tax Rates
59 Pages Posted: 2 Feb 2018 Last revised: 8 May 2019
Date Written: April 2019
We investigate whether and to what extent the adoption of an intellectual property box increases innovative activity and the extent to which different types of firms benefit financially. We examine the adoption of the intellectual property box in Belgium because it allows us to cleanly identify the impact on innovative activity and effective tax rates. Our results indicate an overall increase in innovative activity as proxied by patent applications, grants, and highly-skilled employment, at the expense of patent quality. We also provide evidence that firms with patents on average enjoy 7.2% to 7.9% lower effective tax rates, with the greatest financial benefits accruing to multinational firms compared to domestic firms. Within multinational firms, those without income shifting opportunities appear to benefit more than other multinationals with income shifting opportunities.
Keywords: IP boxes, tax incentive, tax avoidance, income shifting
JEL Classification: H21, H25
Suggested Citation: Suggested Citation