Working Paper

Is it just Luring Reported Profit? The Case of European Patent Boxes

Marko Köthenbürger, Federica Liberini, Michael Stimmelmayr
CESifo, Munich, 2018

CESifo Working Paper No. 7061

Patent box regimes have become increasingly popular as an instrument to attract taxable income from intellectual property (IP). This paper assesses the quantitative impact of patent box regimes on profit shifting by multinational enterprises (MNEs). We proxy the ability to access the tax benefit of the patent box by historical IP ownership. On average, affiliates belonging to MNEs with historical IP ownership report, after the introduction of a patent box, 8.5 percent higher profit compared to their counterparts with no IP ownership. Patent boxes do not only lure reported profit. The pre-tax profit change is a net effect and thus also accounts for reversed internal debt shifting out of the country and productivity changes. The overall behavioral adjustments might lower corporate tax revenues. Further, the design of the patent box and the existence of a tax haven affiliate within an MNE turn out to be critical for the amount of profits shifted.

CESifo Category
Public Finance
Economics of Digitization
JEL Classification: H250, H260, F230, C210, C230