Corporate Income Tax, IP Boxes and the Location of R&D

Pranvera Shehaj and Alfons Weichenrieder

No 9397, CESifo Working Paper Series from CESifo

Abstract: The paper discusses the effects of the corporate tax on local R&D expenditures by multinational enterprises (MNEs) when income from intellectual property (IP) may or may not benefit from a special IP regime. Our model shows that an increase of the standard corporate tax may have positive effects on the R&D expenditures in the country that carries out the corporate tax increase. The possible positive R&D effect results from a tax asymmetry: not all R&D returns are subject to the higher tax. First, since R&D creates a public good within the MNE, some of the R&D benefit is taxed at other countries’ tax rates that are not subject to the tax increase. Second, some of the R&D benefits are taxed at a lower IP regime tax rate. Therefore, a higher corporate tax, which increases value of the cost deductibility of R&D, may actually foster R&D. This expectation is empirically supported by country-by-country R&D data of U.S.-owned subsidiaries for countries that have an IP regime.

Keywords: corporate income tax; R&D; intellectual property regimes; patent box; international profit shifting (search for similar items in EconPapers)
JEL-codes: H25 H26 O30 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-acc, nep-cwa, nep-ino, nep-ipr, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Corporate income tax, IP boxes and the location of R&D (2024)
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