Corporate taxation and the choice of patent location within multinational firms

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2879

Classification and Topics

• Classification: Wirtschaft ; Business Taxes and Subsidies including sales and value-added (VAT) ; Multinational Firms; International Business ; Tax Evasion and Avoidance ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models
• Subject: corporate taxation ; multinational enterprise ; profit shifting

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Karkinsky, Tom ; Riedel, Nadine
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/30538
• Last update: 10.03.2025, 11:44 AM CET