This study investigates the impact of the nexus requirement on entities’ location decisions for intellectual property and investments. The nexus requirement links the preferential IP Box taxation to domestic research activity, aiming to reduce cross-border patent shifting. Using a stacked difference-in-differences design on a sample of European entities, I analyze whether entities alter their location decisions for investments and intellectual property after the nexus requirement applies. Analyses reveal that the nexus requirement is effective in reducing entities’ patent shifting to IP Box entities. Additional results suggest that multinational entities reallocate capital and labor investment from non-IP Box entities toward IP Box entities to meet the nexus requirement and retain the IP Box tax benefit. While substance requirements were intended to prevent IP and profit outflows from high-tax countries without IP Boxes, they have instead led entities to reallocate investments and innovative activity from these countries to countries offering IP Boxes.

This study estimates compliance costs of applying for corporate R&D tax credits. Using representative firm-level data on R&D expenditure and applications for R&D tax credits from Germany, we estimate compliance costs as foregone tax benefits. For this purpose, we compute potential benefits from applying for the German R&D tax credit and then examine whether or not firms applied for this incentive. Compliance costs are signficiant and constitute on average 10% of expected benefits per firm. The costs are larger for firms of micro and small size and smaller in the chemical and pharmaceutical sector.

Our study assesses the impact of state tax policies on entrepreneurship in Poland, focusing on innovative industries. We analyze the creation and closure of self-employed enterprises from 2016 to 2022 across approximately 2,400 municipalities. Our findings reveal a positive spatial autocorrelation in the density of self-employed enterprises utilizing innovation-related tax relief, particularly in and near large cities. However, many small firms did not take advantage of these reliefs. Notably, municipalities with self-employed enterprises benefiting from R&D tax breaks experienced fewer closures. In contrast, the presence of IP Box users was linked to fewer new establishments, especially in manufacturing. Both types of relief positively influenced innovative sectors like Information and Communication, and Professional, Scientific, and Technical activities.

Governments subsidize R&D expenditure in two ways: through subsidizing cost, or by reducing the tax rate on income, as through a patent box. It is not clear which of these is more cost effective in achieving a given increase in R&D. On the one hand, relief for expenditure implies subsidizing projects which ultimately fail. On the other hand, generous treatment of returns would apply to all projects, including those that went ahead without any subsidy. This paper addresses which of these two approaches is more cost efficient from the perspective of government expenditure. The paper abstracts from profit shifting, which may give an advantage to the patent box approach from the perspective of a single government (Haufler and Schindler, 2023). This consideration may be less important in a world with a global minimum tax.