Arbeitspapier

Corporate taxation and the choice of patent location within multinational firms

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.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 2879

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

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

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Karkinsky, Tom
  • Riedel, Nadine
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2009

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