The Merit of Patent Boxes

In a new paper on the merit of patent boxes, Should There Be Lower Taxes on Patent Income, Fabian Gaessler, Brownyn H. Hall and Dietmar Harhoff, examine several questions:

1. When a transfer of patent ownership occurs between countries, is the choice of target country affected by the difference in tax treatment in the two countries and the presence of a patent box? . . .

2. Is the choice of priority country influenced by that country’s treatment of patent income? We are motivated to some extent by the observation that the share of patents with a priority country that differs from the location of the invention has risen in the recent past.

3. Does patentable invention in a country increase after the introduction of a patent box? That is, does this policy instrument have the desired effect?

In addition, we hypothesize that more valuable patents (that is, patents that are more likely to generate income, via own profits or licensing) are more likely to be subject to transfer.

The abstract states the general finding of the paper:

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.

The paper is available, here.  [Hat tip to Dean Paul Caron’s TaxProf Blog.]