R&D intensity and the effective tax rate - a meta-regression analysis

Belz, Thomas ; Hagen, Dominik von ; Steffens, Christian

Document Type: Conference presentation
Year of publication: 2015
Conference title: 2015 ZEW Public Finance Conference - European Tax Policy
Location of the conference venue: Mannheim, Germany
Date of the conference: 27.-28. April 2015
Publication language: English
Institution: Business School > ABWL u. Betriebswirtschaftliche Steuerlehre (Schreiber 1999-2019)
Subject: 330 Economics
Classification: JEL: F23 , H25 , H26 , M41,
Keywords (English): Effective tax rate , R&D intensity , Intangible assets , Profit shifting , Tax accounting , Meta-regression analysis
Abstract: We apply meta-regression techniques to provide a quantitative review of the empirical literature on how research and development (R&D) expenses affect the effective tax rate (ETR). R&D expenses relate to a well-accepted profit shifting channel, strategic placement of intellectual property within a multinational entity. Using a unique hand-collected data set, we add a new perspective to the current base erosion and profit shifting (BEPS) state of research and debate, in three ways: First, observing that primary studies report mixed evidence on how R&D expenses affect ETR, we provide a consensus estimate for this effect. Second, we consider this effect in more detail by separating a tax accounting effect and a profit shifting effect, which to our knowledge has not yet been investigated. We detect that one-third of the R&D effect on the ETR is due to the tax accounting effect and could be mitigated via book-tax conformity. We further find that 10% of the profit shifting effect can be traced back to R&D tax credits. Third, our meta-regression reveals factors that are possible sources of variation and bias in previous empirical studies.

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