Tax-Avoidance Networks and the Push for a “Historic” Global Tax Reform

Katarzyna Bilicka, Michael Devereux and Irem Güçeri

Tax Policy and the Economy, 2023, vol. 37, issue 1, 57 - 108

Abstract: In this paper, we investigate the use of intellectual property (IP) in multinationals’ tax-avoidance strategies. Income arising from intangible property is generally taxed in the location in which such income is received. Many multinationals (MNCs) therefore use tax havens as a base for IP ownership. We leverage a universe of global patent applications and transactions, combined with financial and ownership information, to investigate whether firms locate their patents in tax havens. We find evidence of disproportionate use of havens for both new patent applications and purchase of existing patents. Tax havens such as the Cayman Islands and Liechtenstein have substantially more patents per inhabitant than the largest patenting nations, such as China and the United States. Some 5% of patents in the European markets are held in tax havens, and 30% of global cross-border patent transactions within MNCs have buyers located in tax havens. MNCs that meet the size threshold requirements for the proposed Global Minimum Tax are particularly active in developing patents: they constitute 2.6% of affiliates but are responsible for 42% of all patent applications and 45% of tax haven ones. The Global Minimum Tax could therefore have an important impact on incentives to locate patents in low-tax jurisdictions.

Date: 2023
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Chapter: Tax Avoidance Networks and the Push for a "Historic" Global Tax Reform (2022)
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