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

Tobias Bornemann, Stacie O. Kelley Laplante, Benjamin Osswald

Research output: Contribution to journalArticlepeer-review

Abstract

We exploit a quasi-experimental setting with high internal validity to measure the effect of adopting an intellectual property (IP) box on innovative activity and tax benefits. We document innovative activity increases, including patent applications, grants, and highly skilled employment, at the expense of patent quality. Domestic firms drive this effect. We also provide evidence that firms with patents, on average, enjoy up to 7.0 percent lower effective tax rates, with the most significant tax benefits accruing to multinational firms compared to domestic firms. We use the Belgium IP box that limits tax benefits to patent income. Prior IP box literature analyzes heterogeneous IP boxes and provides evidence of substantial increases in patent applications in response to IP box adoption. Our results suggest the patent-income only IP box leads to a modest increase in innovative activity by a maximum of 5.1 percent, with multinationals benefitting relatively more from a financial perspective.

Original languageEnglish (US)
Pages (from-to)7-33
Number of pages27
JournalJournal of the American Taxation Association
Volume45
Issue number2
DOIs
StatePublished - Sep 1 2023

Keywords

  • IP boxes
  • income shifting
  • tax avoidance
  • tax incentive

ASJC Scopus subject areas

  • Accounting
  • Finance

Fingerprint

Dive into the research topics of 'The Effect of Intellectual Property Boxes on Innovative Activity and Tax Benefits'. Together they form a unique fingerprint.

Cite this