Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/30538 
Year of Publication: 
2009
Series/Report no.: 
CESifo Working Paper No. 2879
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
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.
Subjects: 
corporate taxation
multinational enterprise
profit shifting
JEL: 
H25
F23
H26
C33
Document Type: 
Working Paper
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