The Impact of Intangible Assets’ Mobility on Intangibles Location and Income Shifting: Trademarks vs. Patents
53 Pages Posted: 18 Aug 2022
Date Written: August 11, 2022
Despite OECD efforts to combat profit shifting, recent literature shows that firms with higher ratios of intangible assets have increased income shifting activities. Intellectual property is used more than other forms of capital by MNCs to shift income from high to low tax jurisdictions. Although these insights are important, they have not shown which type of intangible assets are most important to firms’ income shifting strategies. We estimate a mixed logit model to investigate firms’ location choices for different types of intellectual property and how these choices facilitate income-shifting. By directly comparing decisions about patent and trademark locations, we show that trademarks exhibit a particularly high sensitivity to tax differentials. This finding aligns with theory that trademarks can be more mobile than patents, which can be sticky due to agglomeration effects. Despite the focus in prior literature on patents, we find that trademarks are more important than patents to explain firm’s income-shifting.
Keywords: intangible assets, patents, trademarks, tax planning, income shifting
JEL Classification: H25, F23, H26, H3
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