Patent Concentration, Asymmetric Information, and Tax-Motivated Income Shifting

57 Pages Posted: 18 May 2020

See all articles by Harald Amberger

Harald Amberger

Vienna University of Economics and Business

Benjamin Osswald

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: May 1, 2020

Abstract

We study the relation between patent concentration and tax-motivated income shifting. Using affiliate-level data for European multinational corporations (MNCs) and employing the relative share of patents held by an MNC as a measure for patent concentration, we predict and find that tax-motivated income shifting is increasing in the degree of patent concentration. This effect is economically meaningful: A one standard deviation higher patent concentration increases the extent to which affiliate-level profits are sensitive to income-shifting incentives by 25.6 percent. Additional tests exploiting variation in the information set of the local tax authority suggest that patent concentration facilitates tax-motivated income shifting by reducing comparable information available to the local tax authority. Overall, our results suggest that patent concentration shapes an MNC’s incentives to shift income via patents. Our findings also indicate that the effectiveness of tax-policy measures in curtailing this form of income shifting critically depends on their ability to improve the information set of the local tax authority.

Keywords: income shifting; intellectual property; knowledge diffusion; transfer pricing

JEL Classification: H25, H26, L11; O34

Suggested Citation

Amberger, Harald Johannes and Osswald, Benjamin, Patent Concentration, Asymmetric Information, and Tax-Motivated Income Shifting (May 1, 2020). WU International Taxation Research Paper Series No. 2020-05, Available at SSRN: https://ssrn.com/abstract=3600839 or http://dx.doi.org/10.2139/ssrn.3600839

Harald Johannes Amberger (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Benjamin Osswald

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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