Corporate Taxes, Profit Shifting and the Location of Intangibles within Multinational Firms

Published: June 1, 2008, 11 a.m.

b'Intangible assets are one major source of profit shifting opportunities due to a highly intransparent transfer pricing process. Our paper argues that multinational enterprises (MNEs) optimize their profit shifting strategy by locating shifting\\u2013relevant intangible property at affiliates with a low statutory corporate tax rate. Using panel data for European MNEs and controlling for unobserved time\\u2013constant heterogeneity between affiliates, we find that the lower a subsidiary\\u2019s tax rate relative to other affiliates of the multinational group the higher is its level of intangible asset investment. This effect is statistically and economically significant, even after controlling for subsidiary size and accounting for a dynamic intangible investment pattern.'