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

62 Pages Posted: 2 Feb 2018 Last revised: 8 Sep 2020

See all articles by Tobias Bornemann

Tobias Bornemann

Vienna University of Economics and Business

Stacie Kelley Laplante

University of Wisconsin - Madison

Benjamin Osswald

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: August 2020

Abstract

We exploit a quasi-experimental setting to cleanly identify the effect of the adoption of an intellectual property box (IP box) on innovative activity and effective tax rates. We document an increase in innovative activity, including patent applications, grants, and highly-skilled employment, at the expense of patent quality. Domestic firms drive this effect. We also provide evidence that firms with patents, on average, enjoy 7.2 percent to 7.9 percent lower effective tax rates, with the most significant financial benefits accruing to multinational firms compared to domestic firms. Within multinational firms, those without outbound income-shifting opportunities appear to benefit more than other multinationals. Relative to studies that use heterogeneous IP boxes, our results suggest an IP box that provides tax benefits for patent income only leads to a reasonable increase in innovative activity of 0.4 to 5.1 percent, with multinationals benefitting disproportionately from a financial perspective.

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 (August 2020). 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 ( email )

Welthandelsplatz 1
Vienna, Wien 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 Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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