European multinationals increasingly hold intellectual property offshore. This project will develop and estimate a model of firms' choices over where to locate intellectual property in the form of patents and consider how such decisions are affected by corporate tax.

The project will use an econometric model of firms' location decisions that allows for the fact that firms will vary substantially in the ways that they respond to tax, with the variation being related both to observable differences in firms (e.g. larger versus smaller firms) and to unobservable differences (e.g. managerial quality).

In recent years a number of European countries have introduced 'Patent Boxes' which reduce the rate of corporation tax for the income from patents. The UK government is currently considering similar plans to reduce the rate of corporation tax for patent income to 10% in 2013.

The model will allow consideration of the impact of the introduction of Patent Boxes which will in turn inform the current UK policy debate. In addition, the methodology developed will be useful for evaluating other recent reforms, such as the UK's move to an exemption system for the taxation for foreign income, as well potential future reforms.