Corporate taxes, patent shifting, and anti-avoidance rules empirical evidence Martina Baumann, Tobias Boehm, Bodo Knoll and Nadine Riedel
Contributor(s): Baumann, Martina
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ArticlePublisher: 2020Subject(s): SOCIEDADES | EMPRESAS MULTINACIONALES | PATENTES | IMPUESTOS | ELUSION FISCALOnline resources: Click here to access online
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Public Finance Review v. 48, n. 4, July 2020, p. 467-504Summary: We empirically assess international corporate tax avoidance by strategic location of innovative output. The analysis draws on the universe of patent applications to the European Patent Office from 1990 to 2006 linked with data on multinational entities (MNEs) in Europe. Four findings emerge: first, patent holdings are distorted toward low-tax countries. Second, patent location in low-tax countries is correlated with a geographic separation of research and development output and input. Third, MNEs systematically sort high-value (low-value) patents to low-tax (high-tax) countries. Fourth, the propensity to locate patent ownership in low-tax countries is significantly decreased if controlled foreign company rules are enacted in the MNE’s parent country. The tightening of transfer pricing legislation, in turn, exerts a weak negative effect on the location of patent ownership only.
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We empirically assess international corporate tax avoidance by strategic location of innovative output. The analysis draws on the universe of patent applications to the European Patent Office from 1990 to 2006 linked with data on multinational entities (MNEs) in Europe. Four findings emerge: first, patent holdings are distorted toward low-tax countries. Second, patent location in low-tax countries is correlated with a geographic separation of research and development output and input. Third, MNEs systematically sort high-value (low-value) patents to low-tax (high-tax) countries. Fourth, the propensity to locate patent ownership in low-tax countries is significantly decreased if controlled foreign company rules are enacted in the MNE’s parent country. The tightening of transfer pricing legislation, in turn, exerts a weak negative effect on the location of patent ownership only.
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