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Corporate taxes and the location of intellectual property

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  • Griffith, Rachel
  • Miller, Helen
  • O'Connell, Martin

Abstract

The literature suggests that tax rates on mobile activities should fall to zero. Intellectual property is very mobile and has grown in importance. Firms can use intellectual property to shift income offshore and reduce their corporate income tax liability. Yet most intellectual property is held in relatively high tax countries. We estimate the impact of corporate taxes on where firms hold patents. We consider domestic and international taxes, and control for the potential non-tax costs and benefits associated with different locations. We allow heterogeneity across industries, firm size and, most importantly, unobservable patent specific heterogeneity in the responsiveness of patent location to tax. Our results suggest that, on average, corporate tax rates have a negative impact on the likelihood of a firm choosing a location, and that there is substantial heterogeneity in responses. We simulate the impact of recent reforms that apply a lower tax rate to patent income, finding that they attract patent income but result in losses in government revenues.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8424.

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Date of creation: Jun 2011
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Handle: RePEc:cpr:ceprdp:8424

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Keywords: corporate tax; intellectual property; multinational firms; Patent Box;

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References

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Cited by:
  1. Christoph Ernst & Katharina Richter & Nadine Riedel, 2013. "Corporate taxation and the quality of research & development," Working Papers 1301, Oxford University Centre for Business Taxation.
  2. Dyreng, Scott D. & Lindsey, Bradley P. & Thornock, Jacob R., 2013. "Exploring the role Delaware plays as a domestic tax haven," Journal of Financial Economics, Elsevier, vol. 108(3), pages 751-772.

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