Norsk oversettelse av OECDs «Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations»

We examine the effect of the introduction of a large tax rate cut on patent income in Belgium on firms' patenting activities and effective tax rates (ETRs). In contrast to contemporaneous research on intellectual property (IP) boxes that examines multiple countries, we focus on one country because it allows us to cleanly identify targeted innovative activity and resulting tax benefits around the adoption of the IP box. We find that relative to firms in an adjoining country with no IP box, patent applications and patent grants increase after the introduction of an IP box regime, while patent quality decreases. This pattern is robust across both a balanced and unbalanced sample of firm-years, patent intense industries, as well as domestic and multinational firm years respectively. Moreover, we find that firms separate into three groups when considering ETRs. Tax savings are most pronounced for subsidiaries of multinational firms without opportunities to shift income out of the country followed by domestic firms. In contrast, subsidiaries of multinational firms with opportunities to shift income out of the country do not experience significant reductions in effective tax rates. Overall, we provide initial evidence that IP boxes provide benefits for domestic firms and multinationals without income shifting opportunities.

/pdf/the-effect-of-intellectual-property-boxes-on-innovative-2t6bilsdoy.pdf

The Effect of Intellectual Property Boxes on Innovative Activity & Effective Tax Rates

We investigate how R&D contributes to rising foreign profitability in U.S. multinational corporations (MNCs) through wage savings and tax incentives. Our results suggest that wage savings increase foreign profit margins attributable to foreign R&D, while tax incentives increase foreign profit margins attributable to domestic R&D. By exploring their relative importance, we find that wage savings are more important than tax incentives in explaining foreign profit margins when the wage discount substantially exceeds the tax differential, and vice versa. Cross-sectional tests show that the effect of foreign R&D wage savings increases with access to local human talent and decreases with the cost of moving R&D abroad, and the effect of tax-motivated income shifting related to domestic R&D decreases with transfer pricing risk. Our evidence sheds light on the importance of R&D in corporate income shifting that separates the location of economic activity from the location of reported taxable income.

R&D and the rising foreign profitability of U.S. multinational corporations

Our study investigates firms' internal digitalizationas a crucial foundation for timely, data-driven decision making We evaluate the association between digital infrastructure and improved decision making intax planning decisions to analyze if the benefits of digitalization expand beyond firms' core business functions The novel use of a survey that identifies European firms' digital infrastructure over the period from 2005 to 2016 allows us to create an index of IT sophistication Using this index, we extend prior approaches and observe the effectiveness of tax planning decisions in terms of a firm's ability to exploit income shifting incentives Our empirical analysis confirms the prediction that digitalized firms respond more efficiently to income shifting incentives Further, we provide evidence that firms with sophisticated IT are more reactive to shocks in the income shifting incentive than non-digital firms Our results suggest that internal digitalization allows firms to efficiently monitor and manage internal processes and to strategically price internal transactions With this work, we are the first to document the association of digitalization and the performance of firms' support functions

Internal digitalization and tax-efficient decision making

The Effect of Changes in Income Shifting on Affiliate Managers’ Internal Reporting Decisions†

We study the relation between patent concentration and tax-motivated income shifting. Using affiliate-level data for European multinational corporations (MNCs) and employing the relative share of patents held by an MNC as a measure for patent concentration, we predict and find that tax-motivated income shifting is increasing in the degree of patent concentration. This effect is economically meaningful: A one standard deviation higher patent concentration increases the extent to which affiliate-level profits are sensitive to income-shifting incentives by 25.6 percent. Additional tests exploiting variation in the information set of the local tax authority suggest that patent concentration facilitates tax-motivated income shifting by reducing comparable information available to the local tax authority. Overall, our results suggest that patent concentration shapes an MNC’s incentives to shift income via patents. Our findings also indicate that the effectiveness of tax-policy measures in curtailing this form of income shifting critically depends on their ability to improve the information set of the local tax authority.

/pdf/patent-concentration-asymmetric-information-and-tax-94af55h6h2.pdf

Benjamin Oßwald

Papers

Patent Concentration, Asymmetric Information, and Tax-Motivated Income Shifting