Should There Be Lower Taxes on Patent Income?
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 patents filed 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.
We would like to thank seminar audiences at the OECD, the Mannheim Tax Summer School 2017, the INNOPAT 2017 Conference, Harvard Business School, the College de France, and the 72nd Annual Congress of the International Institute of Public Finance (Lake Tahoe) for helpful comments. Particular thanks go to Philippe Aghion, Jost Heckemeyer, Deborah Schanz, Joel Slemrod, Mehmet Tosun, and Alfons Weichenrieder. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Fabian Gaessler & Bronwyn H. Hall & Dietmar Harhoff, 2021. "Should there be lower taxes on patent income?," Research Policy, vol 50(1).