The Effect of Innovation Box Regimes on Income Shifting and Real Activity

Chen, Shannon; Simone, Lisa De; Hanlon, Michelle; Lester, Rebecca

doi:10.2139/ssrn.3486428

Cited by 18 publications

(32 citation statements)

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“…Intellectual property box regimes are a tax policy tool used to increase innovative activities and attract and retain investment related to research and development from abroad (Bradley et al 2015;Brannon and Hanlon 2015;Evers et al 2015;Chen et al 2016). Unlike input-based R&D tax incentives such as R&D tax credits, IP boxes target successful R&D activities that generally result in commercially viable products by providing a reduction in the tax rate applicable to IP income.…”

Section: Institutional Backgroundmentioning

confidence: 99%

“…Evers et al (2015) derive effective tax burdens on marginal R&D investments for several IP box regimes across Europe and show, analytically, that IP box regimes can significantly decrease the effective tax burdens on marginal R&D investments, but significant variation in tax burdens across countries exists. Chen et al (2016) empirically assess the introduction of IP box regimes across several countries and find an increase in total employment, but no increase in fixed asset investment after the introduction of the IP boxes. 9 Other research across multiple jurisdictions finds that an IP box increases the responsiveness of patent applications to tax rates on patent income, but only when -9 -inventors and patent owners are located in the same host country (Bradley et al 2015).…”

Section: The Effect Of Ip Box Regimes On Innovative Activitymentioning

confidence: 99%

“…Given that U.S. firms invested approximately $502.9 billion in R&D activities in 2013 (OECD 2015), this suggests that the U.S. R&D tax credit induces anywhere between 2.2% and 6.6% of total corporate R&D investment in the U.S. With respect to IP boxes, Merrill et al (2012) estimate the cost of a U.S. version of an IP box regime at $9 billion (if enacted in the same form as in the U.K.) to $11 billion (if enacted in the same form as Belgium) per year. Given the heterogeneous nature of IP box regimes across countries, however, -2 -it is unclear whether and to what extent IP boxes increase innovative activities, or benefit firms (e.g., Alstadsaeter, Barrios, Nicodeme, Skonieczna, and Vezzani 2018;Bradley, Dauchy, and Robinson 2015;Chen, De Simone, Hanlon, and Lester 2016;Schwab and Todtenhaupt 2019). In contrast to contemporaneous research on IP boxes that examines multiple countries, our research design exhibits strong internal validity that allows us to estimate the extent to which an IP box affects innovative activity.…”

Section: Introductionmentioning

confidence: 99%

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

Bornemann

Oßwald

2018

SSRN Journal

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We investigate whether and to what extent the adoption of an intellectual property box increases innovative activity and the extent to which different types of firms benefit financially. We examine the adoption of the intellectual property box in Belgium because it allows us to cleanly identify the impact on innovative activity and effective tax rates. Our results indicate an overall increase in innovative activity as proxied by patent applications, grants, and highly-skilled employment, at the expense of patent quality. We also provide evidence that firms with patents on average enjoy 7.2% to 7.9% lower effective tax rates, with the greatest financial benefits accruing to multinational firms compared to domestic firms. Within multinational firms, those without income shifting opportunities appear to benefit more than other multinationals with income shifting opportunities.

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Section: Institutional Backgroundmentioning

confidence: 99%

Section: The Effect Of Ip Box Regimes On Innovative Activitymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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

Bornemann

Oßwald

2018

SSRN Journal

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“…In this regard, we evaluate the effectiveness of tax planning decisions in terms of a firm's ability to exploit income shifting incentives. Hence, we also contribute to the momentum gaining debate on the extent and determinants of taxmotivated income shifting (Amberger and Osswald 2020;Blouin and Robinson 2019;Chen et al 2019;De Simone et al 2017;Markle 2016).…”

Section: Introductionmentioning

confidence: 90%

Internal Digitalization and Tax-efficient Decision Making

2020

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Our study investigates firms' internal digitalization as a crucial foundation for timely, datadriven decision making. We evaluate the association between digital infrastructure and improved decision making in tax 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.

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“…Preliminary results by Chen et al (2017) suggest that profit shifting out of high-tax countries decreases after the introduction of reduced income tax rates on income related to intellectual property (innovation boxes).…”

Section: Tax-motivated Income Shiftingmentioning

confidence: 99%

Consumption Taxes and Corporate Tax Planning - Evidence from European Service Firms

Werner

Olbert

2019

SSRN Journal

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Consumption taxes are a primary source of tax revenue and, against the common intuition, firms might bear the respective tax burden. However, it is largely unknown how firms respond to consumption taxes. We examine whether service firms in Europe respond to consumption taxes and whether managing sales as the respective tax base is interrelated with subsequent income tax-motivated profit shifting. We exploit corporate affiliate-level panel data and a unique setting in Europe over the period 2007-2015 with 72 staggered and plausibly exogenous consumption and corporate income tax rate changes. We find that firms, on average, exhibit a negative valueadded tax-rate semi-elasticity of reported sales of around 0.5. Consistent with theory and incentives from the European value-added tax system, the effect is stronger for firms with greater discretion over the jurisdiction of value-added tax liability (firms in the digital service sector) and firms facing greater demand elasticity. We then show that the extent and the channels of profit shifting depend on firms' responsiveness to consumption taxes consistent with managing sales in response to consumption taxes placing a constraint on manipulating transfer prices for intra-group trade. Our study thereby provides novel insights for the design of multidimensional tax systems.

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The Effect of Innovation Box Regimes on Income Shifting and Real Activity

Cited by 18 publications

References 0 publications

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

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

Internal Digitalization and Tax-efficient Decision Making

Consumption Taxes and Corporate Tax Planning - Evidence from European Service Firms

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