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Taxes, Technology Transfer, and the R&D Activities of Multinational Firms

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  • James R. Hines, Jr.

Abstract

Multinational firms that use domestic technologies in foreign locations are required to pay royalties from foreign users to domestic owners. Foreign governments often tax these royalty payments. High royalty tax rates raise the cost of imported technologies. This paper examines the effect of royalty taxes on the local R&D intensities for foreign affiliates of multinational corporations, looking both at foreign-owned affiliates in the United States and at American-owned affiliates in other countries. The results indicate that higher royalty taxes are associated with greater R&D intensity on the part of affiliates, suggesting that local R&D is a substitute for imported technology.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4932.

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Date of creation: Nov 1994
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Publication status: published as The Effects of Taxation on Multinational Corporations, eds. M. Feldstein, J. Hines, R. G. Hubbard, University of Chicago Press, 1995, pp. 225-248
Handle: RePEc:nbr:nberwo:4932

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  1. Zvi Griliches, 1991. "The Search for R&D Spillovers," NBER Working Papers 3768, National Bureau of Economic Research, Inc.
  2. Davidson, W H & McFetridge, Donald G, 1984. "International Technology Transactions and the Theory of the Firm," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 32(3), pages 253-64, March.
  3. Magnus Blomstrom, 1991. "Host Country Benefits of Foreign Investment," NBER Working Papers 3615, National Bureau of Economic Research, Inc.
  4. Bronwyn H. Hall., 1993. "R&D Tax Policy During the 1980s: Success or Failure?," Economics Working Papers, University of California at Berkeley 93-208, University of California at Berkeley.
  5. Hines, J.R., 1990. "The Flight Paths Of Migratory Corporations," Papers, Princeton, Woodrow Wilson School - Discussion Paper 65, Princeton, Woodrow Wilson School - Discussion Paper.
  6. Mansfield, Edwin & Romeo, Anthony, 1980. "Technology Transfer to Overseas Subsidiaries by U.S.-Based Firms," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 95(4), pages 737-50, December.
  7. Hines, James R, Jr & Rice, Eric M, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(1), pages 149-82, February.
  8. Zejan, Mario C, 1990. " R&D Activities in Affiliates of Swedish Multinational Enterprises," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 92(3), pages 487-500.
  9. James R. Hines, Jr., 1994. "No Place Like Home: Tax Incentives and the Location of R&D by American Multinationals," NBER Chapters, in: Tax Policy and the Economy, Volume 8, pages 65-104 National Bureau of Economic Research, Inc.
  10. David Harris & Randall Morck & Joel B. Slemrod, 1993. "Income Shifting in U.S. Multinational Corporations," NBER Chapters, in: Studies in International Taxation, pages 277-308 National Bureau of Economic Research, Inc.
  11. James R. Hines, Jr. & R. Glenn Hubbard, 1990. "Coming Home to America: Dividend Repatriations by U.S. Multinationals," NBER Working Papers 2931, National Bureau of Economic Research, Inc.
  12. Magnus Blomstrom & Jian-Ye Wang, 1992. "Foreign Investment and Technology Transfer: A Simple Model," NBER Working Papers 2958, National Bureau of Economic Research, Inc.
  13. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May.
  14. Ethier, Wilfred J. & Markusen, James R., 1996. "Multinational firms, technology diffusion and trade," Journal of International Economics, Elsevier, Elsevier, vol. 41(1-2), pages 1-28, August.
  15. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier.
  16. Kokko, Ari & Blomstrom, Magnus, 1995. "Policies to encourage inflows of technology through foreign multinationals," World Development, Elsevier, Elsevier, vol. 23(3), pages 459-468, March.
  17. Mansfield, Edwin & Teece, David & Romeo, Anthony, 1979. "Overseas Research and Development by US-Based Firms," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 46(182), pages 187-96, May.
  18. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, Elsevier, vol. 26(1), pages 107-121, February.
  19. Kopits, George F, 1976. "Intra-firm Royalties Crossing Frontiers and Transfer-Pricing Behaviour," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 86(344), pages 791-805, December.
  20. M. Ishaq Nadiri, 1993. "Innovations and Technological Spillovers," NBER Working Papers 4423, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Mihir A. Desai & James R. Hines, Jr., 1996. ""Basket" Cases: International Joint Ventures After the Tax Reform Act of 1986," NBER Working Papers 5755, National Bureau of Economic Research, Inc.
  2. Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995 Elsevier.
  3. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2001. "Repatriation Taxes and Dividend Distortions," NBER Working Papers 8507, National Bureau of Economic Research, Inc.
  4. Dagenais, M. & Mohnen, P. & Therrien, P., 1997. "Do Canadian Firms Respond to Fiscal Incentives To Research and Development?," G.R.E.Q.A.M., Universite Aix-Marseille III 97b05, Universite Aix-Marseille III.
  5. James R. Hines Jr., 2005. "Do Tax Havens Flourish?," NBER Chapters, in: Tax Policy and the Economy, Volume 19, pages 65-100 National Bureau of Economic Research, Inc.
  6. Pierre Mohnen, 1999. "Tax Incentives: Issue and Evidence," CIRANO Working Papers, CIRANO 99s-32, CIRANO.
  7. James R. Hines, Jr., 1996. "Tax Policy and the Activities of Multinational Corporations," NBER Working Papers 5589, National Bureau of Economic Research, Inc.
  8. Christoph Ernst & Katharina Richter & Nadine Riedel, 2013. "Corporate taxation and the quality of research & development," Working Papers, Oxford University Centre for Business Taxation 1301, Oxford University Centre for Business Taxation.
  9. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2002. "International Joint Ventures and the Boundaries of the Firm," NBER Working Papers 9115, National Bureau of Economic Research, Inc.

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