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

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Title: The Effect of Intellectual Property Boxes on Innovative Activity and Tax Avoidance
Authors: Bornemann, Tobias
Laplante, Stacie
Osswald, Benjamin
Keywords: IP boxes
Tax avoidance
Income shifting
Issue Date: 31 Aug 2017
Abstract: Using the unique setting of a large tax rate cut on patent income in Belgium as a quasi-experiment, we examine the effect of intellectual property box regimes (IP boxes) on firms’ patenting activities and effective tax rates. We find that firms, on average, do not significantly increase their patenting activities after the introduction of an IP box regime. However, patent-owning firms experience a 1.6 percentage point lower cash effective tax rate after the introduction of the IP box regime compared to non-patenting firms. This translates into tax revenue reduction of approximately $ 182 million (a 1.5 % reduction in corporate tax revenue) without corresponding increases in firms’ innovative output. Moreover, we find that firms separate into three groups. Subsidiaries of multinational firms without opportunities to shift income out of the country and, to a lesser extent, domestic firms enjoy significant tax savings. 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.
Description: Inquiries about this document can be made to HARC@hawaii.edu
URI/DOI: http://hdl.handle.net/10125/51963
Appears in Collections:08 Taxation (Tax)


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