The Effect of Intellectual Property Boxes on Innovative Activity & Effective Tax Rates

59 Pages Posted: 2 Feb 2018 Last revised: 8 May 2019

See all articles by Tobias Bornemann

Tobias Bornemann

Vienna University of Economics and Business - Department of Finance, Accounting & Statistics

Stacie Kelley Laplante

University of Wisconsin - Madison

Benjamin Osswald

University of Wisconsin - Madison; Vienna University of Economics and Business

Date Written: April 2019

Abstract

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

Bornemann, Tobias and Laplante, Stacie Kelley and Osswald, Benjamin, The Effect of Intellectual Property Boxes on Innovative Activity & Effective Tax Rates (April 2019). WU International Taxation Research Paper Series No. 2018-03. Available at SSRN: https://ssrn.com/abstract=3115977 or http://dx.doi.org/10.2139/ssrn.3115977

Tobias Bornemann

Vienna University of Economics and Business - Department of Finance, Accounting & Statistics ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Stacie Kelley Laplante

University of Wisconsin - Madison ( email )

975 University Avenue
Madison, WI 53706
United States
608-265-3494 (Phone)
608-265-3494 (Fax)

Benjamin Osswald (Contact Author)

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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