Elsevier

Journal of Public Economics

Volume 112, April 2014, Pages 12-23
Journal of Public Economics

Ownership of intellectual property and corporate taxation

https://doi.org/10.1016/j.jpubeco.2014.01.009Get rights and content
Under a Creative Commons license
open access

Highlights

  • Firms use intellectual property (IP) to reduce tax liability by shifting income.

  • We estimate how corporate tax influences where firms choose to legally own IP.

  • Using ex ante analysis we show how tax changes affect the location of IP ownership.

  • We find that preferential tax treatment attracts new IP, but reduces tax revenue.

Abstract

Intellectual property accounts for a growing share of firms' assets. It is more mobile than other forms of capital, and could be used by firms to shift income offshore and to reduce their corporate income tax liability. We consider how influential corporate income taxes are in determining where firms choose to legally own intellectual property. We estimate a mixed (or random coefficients) logit model that incorporates important observed and unobserved heterogeneity in firms' location choices. We obtain estimates of the full set of location specific tax elasticities and conduct ex ante analysis of how the location of ownership of intellectual property will respond to changes in tax policy. We find that recent reforms that give preferential tax treatment to income arising from patents are likely to have significant effects on the location of ownership of new intellectual property, and could lead to substantial reductions in tax revenue.

JEL classification

F21
F23
O3
H3

Keywords

Corporate tax
Intellectual property
Multinational firms
Patent Boxes

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