Corporate taxation and the choice of patent location within multinational firms

Tom Karkinsky and Nadine Riedel

Journal of International Economics, 2012, vol. 88, issue 1, 176-185

Abstract: Corporate patents are important assets in the modern economy, where knowledge is highly valued. In many multinational enterprises (MNEs), they constitute a major portion of the business's value. The intra-firm transfer pricing process for patent-related royalty payments is moreover often highly intransparent and patents thus represent a major source of profit shifting opportunities between multinational entities. For both reasons, MNEs have an incentive to locate their patents at low-tax affiliates to minimize the corporate tax burden. The purpose of our paper is to empirically test for this relationship by exploiting a unique dataset that 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) exerts a negative effect on the number of patent applications filed by a multinational affiliate. The effect is quantitatively large and robust to controlling for firm size and unobserved heterogeneity between the entities. The findings moreover prevail if we account for royalty withholding taxes and binding ‘Controlled Foreign Company’ rules.

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: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (177)

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Related works:
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)
Working Paper: Corporate Taxation and the Choice of Patent Location within Multinational Firms (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:88:y:2012:i:1:p:176-185

DOI: 10.1016/j.jinteco.2012.04.002

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