Patent Concentration, Limited Comparable Information, and Tax-Motivated Income Shifting

59 Pages Posted: 18 May 2020 Last revised: 8 Dec 2021

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: December 7, 2021

Abstract

We study the effect of patent concentration on tax-motivated income shifting. Using affiliate-level data for European multinational corporations (MNCs) and employing the relative share of patents held by an MNC in a country-industry-year as a measure, we show that the concentration of patent ownership facilitates tax-motivated income shifting. This effect is economically significant: a one standard deviation increase in patent concentration implies 59.6 percent more income shifting at the margin. When testing for the mechanism, we find that our results are driven by patent concentration limiting the information set of the local tax authority and increasing an MNC’s transfer-pricing discretion. Overall, our study identifies patent concentration as an important driver of tax-motivated income shifting and suggests that the size of the local tax authority’s information set is critical in curtailing potentially aggressive tax strategies. Hence, in order to be effective, tax-policy measures must broaden this information set.

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, Limited Comparable Information, and Tax-Motivated Income Shifting (December 7, 2021). 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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