Taxation and Intellectual Property: R&D, (re-)location of assets and profit shifting – TaxIP

The goal of this project is to enrich the scientific knowledge of the relationship between the location of Intellectual Property (IP) assets, R&D efforts and taxation, and of the implications in terms of profit shifting. There is a large consensus both in the academic literature and policy discussions, also supported by anecdotal evidence, that R&D, IP, and the associated opaque transfer pricing and internal fee payments are important means for multinationals to shift profits to low-tax jurisdictions. Yet, systematic large-scale empirical evidence on the topic is lacking.

The TaxIP project aims at filing this gap. It will uncover the relationship between IP, R&D, taxes, and profit-shifting strategies using firm-level systematic data linked to patent data. It will leverage information reported directly by multinationals to statistical and fiscal authorities, only newly accessible to researchers, match it to patent and tax data, and use a set of empirical techniques to tackle so far unanswered research questions.

The project will yield novel results through three original axes. First, we aim to quantify the amounts of profit shifted using IP, considering both patent transfer (mis-)prices and licensing fee payments and disentangling the two channels. The goal is to provide a first estimation of the magnitude of the phenomenon. Second, we will investigate the relationship between taxes and the location of R&D efforts through the angle of R&D subcontracting. The objective is to document and quantify the role of internal subcontracting in profit-maximizing strategies. Third, we will evaluate the impact of recent “nexus requirements”, which limit the extent to which firms can distort the locations of R&D and patents for tax purposes. The goal is to provide a better understanding of the role that taxes play in R&D efforts and IP location decisions and to study how more stringent rules can deter tax avoidance.

In addition to contributing to the existing academic literature by pushing the frontier of scientific knowledge, this project is also relevant for policymakers and the wider audience. As revealed by the Global Tax Evasion Report 2024 of the EU Tax Observatory, profit shifting by multinationals remains important despite various policy initiatives. Thus, understanding the mechanisms behind these behaviors and quantifying the amounts at stake is of utmost importance.