In this paper, we investigate the use of intellectual property (IP) in multinationals’ tax avoidance strategies. Income arising from intangible property is generally taxed in the location in which such income is received. Many multinationals (MNCs) therefore use tax havens as a base for IP ownership. We leverage a universe of global patent applications and transactions, combined with financial and ownership information, to investigate whether firms locate their patents in tax havens. We find evidence of disproportionate use of havens for both new patent applications and the purchase of existing patents. Tax havens such as Cayman Islands and Liechtenstein have substantially more patents per inhabitant than the largest patenting nations, such as China and the US. Five percent of patents in the European markets are held in tax havens and 30 percent of global cross border patent transactions within MNCs have buyers located in tax havens. MNCs that meet the size threshold requirements for the proposed Global Minimum Tax are particularly active in developing patents: they constitute 2.6 percent of affiliates, but are responsible for 42 percent of all patent applications and 45 percent of tax haven ones. The Global Minimum Tax could therefore have an important impact on incentives to locate patents in low-tax jurisdictions.
