Corporate taxes and the location of intangible assets within multinational firms

Abstract

Intangible assets, like patents and trademarks, are increasingly seen as the key to competitive success and as the drivers of corporate profit. Moreover, they constitute a major source of profit shifting opportunities in multinational enterprises (MNEs) due to a highly intransparent transfer pricing process. This paper argues that for both reasons, MNEs have an incentive to locate intangible property at affiliates with a relatively low corporate tax rate. Using panel data on European MNEs and controlling for unobserved time-constant heterogeneity between affiliates, we find that the lower a subsidiary's tax rate relative to other affiliates of the multinational group the higher is its level of intangible asset investment. This effect is statistically and economically significant, even after controlling for subsidiary size and accounting for a dynamic intangible investment pattern.JEL classification: H25, F23, H26, C33

Anti profit-shifting rules and foreign direct investment

“…There is also evidence that firms adjust prices for intrafirm trade, so called transfer prices, to lower the tax base in high-tax countries (e.g., Swenson, 2001;Bartelsman and Beetsma, 2003;Clausing, 2003). The extent to which this is possible, however, varies across industries, and intrafirm transactions related to roy-alty payments, R&D, intangible assets, or advertising are found to be particularly tax-sensitive (Harris, 1993;Grubert, 2003;Dischinger and Riedel, 2011).…”

Corporate taxation and the choice of patent location within multinational firms

“…As arm's length-prices for these firm-specific royalty payments are commonly not available to tax authorities, MNEs can distort royalty prices in order to shift profit between the operating entities and the intangibles-owner. Consequently, it pays for the MNE to locate its intellectual property at a low-tax country as this establishes a profit shifting link between all operating affiliates and a tax-haven subsidiary (see also Dischinger and Riedel, 2008). 1 Tax authorities have raised increasing concerns about the relocation of intangible assets to low-tax economies as they fear that the mitigation of intellectual property deteriorates their country's corporate tax base (see e.g.…”

Evaluierung der Forschungsprämie

“…Erhaltung von mobilen, humankapital-und wissensintensiven Investitionen, sowie 3) Differenzierung der Steuersa tze nach der Elastizita t der Steuerbasis. 53 Die Punkte 2) und 3) ergeben sich aus empirischen Forschungen, die feststellten, dass europa ische Ünternehmen eher immaterielle als materielle Vermo genswerte in Tochtergesellschaften in Niedrigsteuerla ndern halten (Dischinger und Riedel, 2011) und die ra umliche Verteilung von Patenten auf den Ko rperschaftsteuersatz reagiert (Griffith et al, 2014 Instruments im Parlament entschieden wird (Roelandt, 2016). Diese Praxis fu gt sich nahtlos in die bereits seit la ngerem bestehende Kultur des Spending Reviews (eine gezielte, wirkungsorientierte Ausgabenkontrolle) der Niederlande ein (Schoch und den Broeder, 2013 scha tzer und Fehlerkorrekturmodelle angewandt.…”