The Effect from Taxes on the Location of Patents A quantitative research on affiliates within European multinational enterprises
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- Master Thesis 
In this thesis, we examine how multinational enterprises strategically allocate their patents in order to reduce the consolidated tax burdens. It is crucial to acknowledge the importance of patents in profit shifting, because it concerns a considerable proportion of lost revenues for European countries. These types of profit shifting strategies have been studied by several researchers previously, but many of them have lost their topicality. Patent box regimes and changes in statutory income tax rates have changed the tax regulatory environment in Europe substantially. However, the effect of these recent changes has received little attention by academics. This thesis aims to fill this academic gap by providing empirical results from a dataset that has a high degree of recency, which thus includes relevant tax deductions from implemented patent boxes. In order to investigate how patents are being used in profit shifting activities, we have adopted the empirical approach from Karkinsky & Riedel (2012). Furthermore, to provide a basis of empirical evidence of profit shifting, we have used a model based on the methodological approach from Böhm, Karkinsky, Knoll, & Riedel (2015). This is a logistic model that estimates the probability of the patent inventor and the patent applicant being geographically separated. By doing so, we provide empirical results that will contribute to strengthening the validity of our main analysis. In the last part of this thesis, we investigate whether high- or low-quality patents are predominantly used in profit shifting activities. Hence, this thesis aims to help tax authorities identifying which patents are more likely to be used in profit shifting activities. Finally, the associated semi-elasticities will be calculated in order for the results to be comparable to previous literature.