Should There Be Lower Taxes on Patent Income?

44 Pages Posted: 25 Jul 2018  

Fabian Gaessler

Max Planck Institute for Innovation and Competition

Bronwyn H. Hall

University of California at Berkeley; National Bureau of Economic Research (NBER); Institute for Fiscal Studies (IFS); Max Planck Institute for Innovation and Competition

Dietmar Harhoff

Max Planck Institute for Innovation and Competition; Ludwig-Maximilians-Universität München; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 19, 2018

Abstract

A “patent box” is a term for the application of a lower corporate tax rate to the income derived from the ownership of patents. This tax subsidy instrument has been introduced in a number of countries since 2000. Using comprehensive data on patent filings at the European Patent Office, including information on ownership transfers pre‐ and post‐grant, we investigate the impact of the introduction of a patent box on international patent transfers, on the choice of ownership location, and on invention in the relevant country. We find that the impact on transfers is small but present, especially when the tax instrument contains a development condition and for high value patents (those most likely to have generated income), but that invention itself is not affected. This calls into question whether the patent box is an effective instrument for encouraging innovation in a country, rather than simply facilitating the shifting of corporate income to low tax jurisdictions.

Keywords: patent box, IP box, innovation tax, BEPS, EPO, invention incentive, patent ownership

JEL Classification: H32, H34, K34, O34

Suggested Citation

Gaessler, Fabian and Hall, Bronwyn H. and Harhoff, Dietmar, Should There Be Lower Taxes on Patent Income? (July 19, 2018). Max Planck Institute for Innovation & Competition Research Paper No. 18-18. Available at SSRN: https://ssrn.com/abstract=3216471 or http://dx.doi.org/10.2139/ssrn.3216471

Fabian Gaessler

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, 80539
Germany

Bronwyn H. Hall (Contact Author)

University of California at Berkeley ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://emlab.berkeley.edu/users/bhhall/index.html

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Max Planck Institute for Innovation and Competition

Marstallplatz 1
Munich, Bayern 80539
Germany

Dietmar Harhoff

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany
+49 89 24246 550 (Phone)
+49 89 24246 599 (Fax)

HOME PAGE: http://www.ip.mpg.de

Ludwig-Maximilians-Universität München ( email )

Munich, 80539
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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