R&D Investments and Tax Incentives: The Role of Intra-Firm Cross-Border Collaboration

Abstract

U.S. multinational corporations increasingly use intra-firm, cross-border research collaboration to disperse R&D across different countries. This paper investigates the implications of such collaboration on the abilities of firms to garner benefits from R&D tax incentives. We find that the association between R&D intensity and tax incentives is three to five times larger when firms have extensive cross-border collaboration connected to a country. We also find that the effect is stronger when local intellectual property protection is weaker and when local innovation resources are higher. Our results suggest that cross-border collaboration helps firms achieve more tax-efficient R&D investments both by reducing the nontax frictions posed by weak intellectual property protection and by increasing the non-tax benefits of foreign R&D.

Keywords: R&D tax incentive, R&D investment, Cross-border collaboration

JEL Classification: F23, H20, O32