Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248942 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9397
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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.
Subjects: 
corporate income tax
R&D
intellectual property regimes
patent box
international profit shifting
JEL: 
H25
H26
O30
Document Type: 
Working Paper
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