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Intellectual property box regimes: effective tax rates and tax policy considerations

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  • Lisa Evers

    ()

  • Helen Miller

    ()

  • Christoph Spengel

Abstract

In 2014, 12 European countries are operating Intellectual Property (IP) Box regimes that provide substantially reduced rates of corporate tax for income derived from important forms of intellectual property. We describe the key features of the policies and incorporate them into forward-looking measures of the cost of capital and the effective average tax rate. We show that the treatment of expenses relating to IP income is particularly important in determining the effective tax burden. A key finding is that regimes that allow expenses to be deducted at the ordinary corporate income tax rate, as opposed to the lower IP Box tax rate, may result in negative effective average tax rates and can thereby provide a subsidy to unprofitable projects. We discuss the ways in which IP Boxes are likely to affect firms’ decisions and relate this to possible policy aims. While some regimes attempt to link the tax benefit to real activities, others have designed a policy targeted at the income streams associated with intellectual property. A key concern is the role that IP Boxes may play in increased tax competition between European countries. Copyright The Author(s) 2015

Suggested Citation

  • Lisa Evers & Helen Miller & Christoph Spengel, 2015. "Intellectual property box regimes: effective tax rates and tax policy considerations," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(3), pages 502-530, June.
  • Handle: RePEc:kap:itaxpf:v:22:y:2015:i:3:p:502-530
    DOI: 10.1007/s10797-014-9328-x
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    Keywords

    Corporate taxation; Effective tax rate; Intellectual property; Patent box; Innovation box; Preferential tax rate; H25; H32; H87; K34; O38;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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