Corporate Income Tax, IP boxes and the Location of R&D

Shehaj, Pranvera (2021) Corporate Income Tax, IP boxes and the Location of R&D. WU International Taxation Research Paper Series, 2021/10. WU Vienna University of Economics and Business, Universität Wien, Vienna.

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Abstract

The paper discusses the effects of the corporate tax on local R&D expenditures by multinational enterprises (MNEs) when income from intellectual property (IP) may or may not benefit from a special IP regime. Our model shows that an increase of the standard corporate tax may have positive effects on the R&D expenditures in the country that carries out the corporate tax increase. The possible positive R&D effect results from a tax asymmetry: not all R&D returns are subject to the higher tax. First, since R&D creates a public good within the MNE, some of the R&D benefit is taxed at other countries’ tax rates that are not subject to the tax increase. Second, some of the R&D benefits are taxed at a lower IP regime tax rate. Therefore, a higher corporate tax, which increases value of the cost deductibility of R&D, may actually foster R&D. This expectation is empirically supported by country-by-country R&D data of U.S.-owned subsidiaries for countries that have an IP regime.

Item Type: Paper
Additional Information: Editors: Eva Eberhartinger, Michael Lang, Rupert Sausgruber and Martin Zagler (Vienna University of Economics and Business), and Erich Kirchler (University of Vienna).
Keywords: corporate income tax, R&D, intellectual property regimes, patent box, international profit shifting
Classification Codes: JEL Classification: H25, H26, O3
Divisions: Departments > Öffentliches Recht und Steuerrecht > Österr. und Internat. Steuerrecht
Depositing User: Gertraud Novotny
Date Deposited: 20 Oct 2021 15:59
Last Modified: 27 Oct 2021 16:32
FIDES Link: https://bach.wu.ac.at/d/research/results/101691/
URI: https://epub.wu.ac.at/id/eprint/8363

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