Should there be lower taxes on patent income?

Abstract

A "patent box" is a term for the application of a lower corporate tax rate to the income derived from the ownership of patents. This tax subsidy instrument has been introduced in a number of countries since 2000. Using comprehensive data on patent filings at the European Patent Office, including information on ownership transfers pre-and post-grant, we investigate the impact of the introduction of a patent box on international patent transfers, on the choice of ownership location, and on invention in the relevant country. We find that the impact on transfers is small but present, especially when the tax instrument contains a development condition and for high value patents (those most likely to have generated income), but that invention itself is not affected. This calls into question whether the patent box is an effective instrument for encouraging innovation in a country, rather than simply facilitating the shifting of corporate income to low tax jurisdictions.

New Trends in Sectoral Taxation – Digital Taxes

“…Effects of the IP boxes are interesting, too. IP boxes have been used for transfer of intellectual property based on better taxation conditions (Gaessler et al, 2018, Köthenbürger et al, 2018. In these terms, modified nexus approach will help to ensure that within IP box are taxed only profits connected with newly generated patents (Köthenbürger et al, 2018).…”