Corporate Taxation and the Choice of Patent Location within Multinational Firms

By T. Karkinsky, Nadine Riedel. Social Science Research Network, 2012

366 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/8cd18c3f851663685f3ebe2eb506d3608b2bb2af

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Citations in the corpus

Patent Boxes Design, Patents Location and Local R&D (2015, background): “…between the level of the corporate income tax rate and the amounts of both a firm’s intangible assets and its patents has been documented by Dischinger and Riedel (2011), Ernst and Spengel (2011), Karkinsky and Riedel (2012), Böhm et al. (2014), Ernst et al. (2014), and Griffith et al. (2014).”
Effectiveness of Fiscal Incentives for R&D: Quasi-experimental Evidence (2019, background): “Some other studies explore the effects of corporate taxation on related outcomes such as patent location (Karkinsky and Riedel (2012), wages of R&D employees (Lokshin and Mohnen (2013)) and new or improved products introduced to the market (Czarnitzki et al. (2011)).”
Ownership of intellectual property and corporate taxation (2014, background): “Most closely related, Dischinger and Riedel (2011) and Karkinsky and Riedel (2012) estimate the relationship between corporate tax and, respectively, the quantity of intangible assets and the number of patent applications made by subsidiaries located in each of a number of European countries.”
Knowledge-Based Capital, Innovation and Resource Allocation (2013, background): “At the same time, new OECD research shows that the fact that MNEs can use cross-border tax strategies to shift profits generated by KBC across countries (OECD, 2013a; Karkinsky and Riedel, 2012) might lead to unintentionally high levels of total tax support for R&D.”
Cross-Border M&As and Innovative Activity of Acquiring and Target Firms (2016, background): “7 For instance, Karkinsky and Riedel (2012) analyze how cross-country variation in tax rates affects the location of patent ownership within multinational firms.”