Intellectual Property and Income Shifting

Lisa De Simone and Richard Sansing
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Lisa De Simone: Stanford University
Richard Sansing: Dartmouth College and CentER, Tilburg University

Research Papers from Stanford University, Graduate School of Business

Abstract: This study investigates three mechanisms used by multinational corporations (MNCs) to shift valuable intellectual property (IP) offshore to low-tax foreign jurisdictions. We identify two major effects that determine the optimal mechanism: the divergence from arm's length effect and the marketing intangible effect. First, if the MNC can understate the fair market value of IP, it prefers to sell domestically developed IP to a foreign subsidiary, which in turn will develop the IP; if the tax authority can overstate the value by imposing retroactive revaluations of the IP, the MNC prefers to develop the IP domestically. Second, we find that using a cost sharing arrangement (CSA) to develop the IP enables the MNC to shift income to low-tax foreign jurisdictions when the MNC has valuable domestic marketing intangibles, such as a global brand.

JEL-codes: D23 H25 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-ipr, nep-pr~ and nep-law
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3265

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