Global Profit Shifting through Intellectual Property and the Impact of US Tax Reforms

Abstract

(MNEs) to expand their operations to reach new markets across the globe. However, one drawback of globalization is that MNEs can easily shift their profits to lower-tax countries. Profit shifting is a practice in which MNEs move their profits from high-tax countries to low-tax countries to lower their overall tax burden. One of the most common forms of this practice is the transfer of intellectual property (IP), including patents, trademarks, copyrights, and trade secrets. It’s a popular option for MNEs looking to reduce their tax burdens, as IP is transferred across borders easily without a need for significant capital investment or even a physical presence. Several notable papers, including 2022 studies by Torslov, Wier, and Zucman and by Guvenen, Mataloni, Rassier, and Ruhl, have argued that the movement of IP is the main channel for profit shifting. However, empirical evidence on the prevalence of this practice has been scarce. This essay uses IP transactions data from the platform ktMINE to compute the amount of patent transfers flowing from the US to two groups of countries: tax havens and non-tax havens.1 Global Profit Shifting through Intellectual Property and the Impact of US Tax Reforms