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Corporate Taxation and the Choice of Patent Location within Multinational Firms

Author

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  • Tom Karkinsky

    (Oxford University Centre for Business Taxation)

  • Nadine Riedel

    (Oxford University Centre for Business Taxation, CESifo Munich)

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.

Suggested Citation

  • Tom Karkinsky & Nadine Riedel, 2009. "Corporate Taxation and the Choice of Patent Location within Multinational Firms," Working Papers 0931, Oxford University Centre for Business Taxation.
  • Handle: RePEc:btx:wpaper:0931
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    More about this item

    Keywords

    corporate taxation; multinational enterprise; profit shifting;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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