The Effect of Intellectual Property Boxes on Innovative Activity & Tax Avoidance

Tobias Bornemann, Stacie Laplante, Benjamin Osswald

Publikation: Working/Discussion Paper

Abstract

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.
OriginalspracheEnglisch
PublikationsstatusVeröffentlicht - 2018

Österreichische Systematik der Wissenschaftszweige (ÖFOS)

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