Corporate Taxation and the Choice of Patent Location within Multinational Firms

Karkinsky, Tom and Riedel, Nadine (2012) Corporate Taxation and the Choice of Patent Location within Multinational Firms. Journal of International Economics, 88 (1). pp. 176-185.

Abstract

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 filled 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.

Item Type: Article
Keywords: corporate taxation, multinational enterprise, profit shifting
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 09 Aug 2012 08:38
Last Modified: 23 Oct 2015 14:07
URI: http://eureka.sbs.ox.ac.uk/id/eprint/4002

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