Corporate Taxation and the Choice of Patent Location within Multinational Firms

Tom Karkinsky and Nadine Riedel

No 2879, CESifo Working Paper Series from CESifo

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 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.

Keywords: corporate taxation; multinational enterprise; profit shifting (search for similar items in EconPapers)
JEL-codes: C33 F23 H25 H26 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Corporate taxation and the choice of patent location within multinational firms (2012)
Working Paper: Corporate Taxation and the Choice of Patent Location within Multinational Firms (2009)
Working Paper: Corporate Taxation and the Choice of Patent Location within Multinational Firms (2009)
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