Patent Transfers and Profit Shifting of Multinational Firms

This research project aims to shed new light on how multinational enterprises (MNEs) engage in profit shifting via the (re-)location of patents, one of the fundamental components of the firms' IP. Until recently, scholars often employed intangible assets as a rather broad measure of IP. Only few studies make use of patent data, but simply rely on differences between a patent's invention and (initial) application location. However, such a static treatment of patent ownership may underestimate the true shifting response. To confront these empirical challenges, we will construct patent-specific ownership chains over time and link information on patent applications (PATSTAT) to firm-level ownership data (Orbis). Specifically, we propose to follow patents over their entire lifetime and classify changes in patent ownership according to a geographical (i.e., within- versus between tax jurisdictions) and a relational (i.e., internal versus external) dimension. We then assess how MNEs allocate patents among their subsidiaries and hence, are able to shift profits towards entities located in low(er)-tax jurisdictions. In addition, we account for two dimensions of patents' characteristics, their value and complexity, which are expected to significantly determine the attractiveness of a patent as profit shifting vehicle. To identify the causal impact of taxation on the location of patents within MNEs we will draw on quasi-experimental variation from tax policy changes. Econometrics Uncover how Multinational Firms use Patent Transfers for Profit Shifting Activities