Corporate Taxation and the Choice of Patent Location within Multinational Firms

Tom Karkinsky () and Nadine Riedel
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Tom Karkinsky: Oxford University Centre for Business Taxation

No 931, Working Papers from Oxford University Centre for Business Taxation

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.

Keywords: corporate taxation; multinational enterprise; profit shifting (search for similar items in EconPapers)
JEL-codes: C33 F23 H25 H26 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-acc, nep-ipr, nep-pr~ and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Corporate taxation and the choice of patent location within multinational firms (2012)
Working Paper: Corporate Taxation and the Choice of Patent Location within Multinational Firms (2009)
Working Paper: Corporate Taxation and the Choice of Patent Location within Multinational Firms (2009)
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