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Corporate Taxation and the Choice of Patent Location within Multinational Firms

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  • Tom Karkinsky
  • Nadine Riedel

Abstract

Corporate patents are perceived to be the key profit-drivers in many multinational enterprises (MNEs). Moreover, as the transfer pricing process for royalty payments is often highly intransparent, they also constitute a major source of profit shifting opportunities between multinational entities. For both reasons, MNEs have an incentive to locate their patents at affiliates with a relatively small corporate tax rate. Our paper empirically tests for this relationship by exploiting a unique dataset which links information on patent applications to micro panel data for European MNEs. Our results suggest that the corporate tax rate (differential to other group members) indeed exerts a negative effect on the number of patents filed by a subsidiary. The effect is quantitatively large and robust against controlling for affiliate size. The findings prevail if we additionally account for royalty withholding taxes. Moreover, binding ‘Controlled Foreign Company’ rules tend to decrease the number of patent applications.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2879.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2879

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Keywords: corporate taxation; multinational enterprise; profit shifting;

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References

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Citations

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Cited by:
  1. Tom Karkinsky & Nadine Riedel, 2009. "Corporate Taxation and the Choice of Patent Location within Multinational Firms," Working Papers, Oxford University Centre for Business Taxation 0931, Oxford University Centre for Business Taxation.
  2. Joel Stiebale, 2014. "Cross-Border M&As and Innovative Activity of Acquiring and Target Firms," Discussion Papers 2014-06, University of Nottingham, GEP.
  3. Dhammika Dharmapala, 2014. "What Do We Know About Base Erosion and Profit Shifting? A Review of the Empirical Literature," CESifo Working Paper Series, CESifo Group Munich 4612, CESifo Group Munich.
  4. Lourdes Jerez Barroso, 2011. "Base imponible y neutralidad del Impuesto de Sociedades: alternativas y experiencias," Hacienda Pública Española, IEF, IEF, vol. 197(2), pages 113-146, June.
  5. Fuest, Clemens & Spengel, Christoph & Finke, Katharina & Heckemeyer, Jost H. & Nusser, Hannah, 2013. "Profit shifting and 'aggressive' tax planning by multinational firms: Issues and options for reform," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 13-078, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Dischinger, Matthias & Riedel, Nadine, 2011. "Corporate taxes and the location of intangible assets within multinational firms," Journal of Public Economics, Elsevier, Elsevier, vol. 95(7), pages 691-707.
  7. Loretz, Simon & Mokkas, Socrates, 2013. "Evidence for profit shifting with tax sensitive capital stocks," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79847, Verein für Socialpolitik / German Economic Association.
  8. Dan Andrews & Chiara Criscuolo, 2013. "Knowledge-Based Capital, Innovation and Resource Allocation," OECD Economics Department Working Papers, OECD Publishing 1046, OECD Publishing.
  9. Michaël Zemmour, 2012. "Tax competition and the move from insurance to assistance," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers), HAL halshs-00768909, HAL.
  10. Marchese, Carla & Marsiglio, Simone & Privileggi, Fabio & Ramello, Giovanni, 2014. "Endogenous Recombinant Growth through Market Production of Knowledge and Intellectual Property Rights," Department of Economics and Statistics Cognetti de Martiis. Working Papers, University of Turin 201413, University of Turin.
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  13. Evers, Maria Theresia & Meier, Ina & Spengel, Christoph, 2014. "Transparency in financial reporting: Is country-by-country reporting suitable to combat international profit shifting?," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 14-015, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  14. Langenmayr, Dominika & Lester, Rebecca, 2014. "Taxation and Corporate Risk-Taking," Discussion Papers in Economics, University of Munich, Department of Economics 20977, University of Munich, Department of Economics.

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