Taxation of MNE Profits in an R&D Driven Economy: Beneficial Tax Havens and Minimum Taxes

29 Pages Posted: 28 Dec 2022

See all articles by Malte Lüttmann

Malte Lüttmann

University of Münster - Institute of Public Economics

Date Written: December 20, 2022

Abstract

In this paper, I consider optimal minimum taxation and the optimal taxation of intellectual property (IP) income in a setting, in which research and development (R&D) activities of multinational enterprises (MNEs) are suboptimally low due to positive cross-country spillovers resulting from R&D activity by MNEs. The R&D incentives set by an MNE's host country are inefficiently low in equilibrium. Allowing MNEs to access tax havens may help to overcome the resulting inefficiency because it shelters the MNEs' profit from foreign taxation. This forces foreign countries to contribute to the R&D incentive for domestic MNEs. In such settings, effective minimum taxes serve as a tool to fine-tune tax haven access. Regardless of the welfare effect of R&D, a strictly positive minimum tax is optimal for each country. Uncoordinated minimum taxes may be excessively high, if R&D investment has a strong impact on productivity. Under certain circumstances, IP boxes are a welfare-improving substitute for tax havens.

Keywords: Corporate taxation, Intellectual Property, Minimum Tax, Multinational Firms, Optimum Taxation, Patent Box

JEL Classification: H25, H71, F23, O31

Suggested Citation

Lüttmann, Malte, Taxation of MNE Profits in an R&D Driven Economy: Beneficial Tax Havens and Minimum Taxes (December 20, 2022). Available at SSRN: https://ssrn.com/abstract=4307592 or http://dx.doi.org/10.2139/ssrn.4307592

Malte Lüttmann (Contact Author)

University of Münster - Institute of Public Economics ( email )

Wilmergasse 6-8
Muenster, 48143
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
125
Abstract Views
785
Rank
407,300
PlumX Metrics