Research On The Impact Of The "patent Box" Preferential Policy On The Flow Of Innovation Factor

Over the past 40 years,China has grown from an agricultural country with less-developed technology to a modern country with the world’s largest number of patent applications.Since 2010,China has become the second-largest economy.However,Chinese patents faced the systematic dilemma of high quantity and low quality.China’s economy has entered a new stage of high-quality development.How to use tax incentives to stimulate high-quality innovation,guide the private sector shifting from quantitative innovation to qualitative innovation,and reduce dependence on foreign technology are important issues to affect China’s high-quality economic development.Tax policy is an important component of China’s high-quality economic development and its international competitiveness.Since the two-pillar package,the race to the bottom of the corporate income tax rate will gradually withdraw from the international arena,but countries will continue to compete for innovative R&D activities and achievements.Since the 21^st century,more countries have joined and implemented the patent box tax incentives.As of 2019,23 of the 27 EU countries have implemented the patent box.As an innovation incentives toolkit,can the patent box promote innovative activities?Current research has not yet come to an agreed conclusion.There is a lack of cross-border empirical research on the patent box in Chinese academia.Most research focuses on policy review and some empirical research discusses the firm-level consequences.Both Chinese and English literature lack researching on the patent box’s incentive effect on patent quality.Policy effects such as attracting the inflow of high-quality patents,smoothing the outflow of local high-quality patents,and reducing dependence on foreign technology have not been examined.Therefore,this paper tries to fill the research gap and takes the patent box preferential tax regime,preferential amount,and types of preferential types as the research focus.This paper measures the policy outcomes on the inflow and outflow of patent quantity and quality,local patents invented,R&D investment amounts,and royalties paid to foreign technology.We construct a research framework to comprehensively explore the attraction effect of the international patent box preferential tax system on the quality and quantity of patents.The main work and the main conclusions formed are as follows:1.This paper illustrates and analyzes the changing trend of patent flows in 44countries from 2000 to 2019 by collecting detailed cross-border patent micro-panel data.The study finds that the quality of patents flowing into regions implementing the"patent box"is the highest,followed by the quality of patents flowing into no"patent box"regions,and the quality of patents remaining in the original country is the lowest.Regardless of whether the patent is invented by a multinational company or not,the average number of citations of patents flowing into"patent box"regions is higher than those flowing into no"patent box"regions,which shows that the quality of patents is closely related to the tax characteristics of the region in which it flows.2.This paper sums up the micro-patents to form data at the three macro-national levels of patent invention country,patent application country,and patent priority country to study the relationship between"patent box"and patents’location selection.In the past,existing literature mainly focused on patent application countries in a single dimension,and few articles cut in from the perspective of patent flow.In the context of the global flow of innovation factors,this paper divides the flow of patents into two categories:the first is the initial patent flow out from the country of invention to the country of patent priority,and the second is the subsequent flow of patents from the country of invention to the country of application.Considering that the"patent box"tax incentive policy is an important tax competition tool for various countries,this paper analyzes the policy effect of the"patent box"from the perspective of patent flow at the interactive national level,which is more in line with the current reality,than conducting research on single registration.3.This empirical research first discusses the impact of the"patent box"preferential intensity on the number of patent inflows and outflows.This study found that the greater the"patent box"preferential intensity established by the inflow country,the more inflow patents can be attracted,and the greater the"patent box"preferential intensity established by the outflow country,the more it can restrain patent outflows.From the perspective of the applicable income of"patent box"preferential policies,the policy effect of the embedded-use income is relatively significant;from the perspective of enterprise types,the patent flow of multinational companies is the most sensitive.In addition,this kind of patent flows is related to import and export trade flows.The BEPS plan implemented for anti-tax avoidance cannot eliminate this kind of patent flows.4.To form the interactive national data,we aggregate micro-level patent data to patent invention country-patent application macro-interactive country level.Based on this interactive national data,this paper discusses the impact of the"patent box"preferential intensity on the quality of mobile patents.The study found that the"patent box"application country can significantly increase the inflow of high-quality patents,reflecting the“patent box’s”the attraction effect to high-quality patents.The BEPS plan implemented for anti-tax avoidance cannot eliminate this kind of high-quality patent flows.From the perspective of the economic dimension of patent value,this paper finds that the establishment of a"patent box"reduces the country’s dependence on foreign technology by decreasing the payment to foreign countries’technology.5.This thesis also analyzes and compares the impact of the preferential treatment of the"patent box"with the R&D tax deduction.The study found that the R&D tax deduction is more effective in increasing the number of patented inventions,but the preferential treatment of the"patent box"is more effective in benefiting the growth of the quality of mobile patents.6.This paper further explains the mechanism why"patent box"affects the quality of mobile patents.First,patents are firm specific resources."Patent box"encourages corporations to further build new knowledge and accumulate on the old knowledge through citing previous successfully granted patents,so the accumulated knowledge forms a unique knowledge barrier against competition.This study found that the establishment of the"patent box"will attract patents with high inner backward-citation counts,which is influenced by the firm specific resources,leading to an increase in the high-quality patent inflow.Second,after the establishment of"patent box"tax incentives,companies have less motivation to use intangible assets to avoid tax overseas.This study found that the"patent box"preferential policy impacted the allocation of corporate resources,released the original tax evasion resources,and led to a decline in the quality of outflowing patents.7.Finally,this paper studies the type of"patent boxes"that is applicable the embedded-use income,and its social and economic impact.This paper discusses this type of embedded"patent boxes"from three perspectives:payment to foreign intangible asset,total factor productivity and welfare levels.The study found that the establishment of the"patent box"significantly reduced the country’s payment for using foreign intangible assets,and the embedded"patent box"further alleviated this dependence on foreign technology.The study also found that the establishment of an embedded"patent box"significantly promoted the growth rate of total factor productivity and led to an increase in the growth rate of welfare levels,which means that the"patent box"will have a positive impact on the structure of an economy.The main contributions of this research are as follows:（1）This paper enriches the international tax research on corporate income tax rate to incentivize innovation.There are few empirical articles in China that study the policy effect of"patent box"tax incentives.This paper starts from the perspective of mobile patents and uses multinational panel data to expand the current literatures.Based on the idea of intangible assets location selection,this paper links the micro-patents data patent inflow and outflow countries to examine the attraction and inhibition effects of"patent boxes"schemes.By researching the flow of patents,this paper tries to offer new perspectives the field of international taxation.（2）This paper verifies the patent box policy impact on the patent flows’quantity and quality.Existing research explains what is the impact of the"patent box"policy on the number of patents and there is a lack of literature examining the quality of patent flows.This article tries to fill the gap,study the impact of the related"patent box"tax incentives on the quality of patent flows,and measure the"patent box"tax incentives effect.Existing literature does not explain this policy impact,mainly because of the lacking international patent panel data.This paper starts from patent big data,builds a multi-dimensional quality index of patents flows,effectively evaluates the microeconomic effects of the"patent box"macro policy,and measures the impact of the"patent box"tax rate preference on the quantity and quality of patents flows.（3）This paper expands research on high-quality development.Previous literature only tested the attraction effect and innovation incentive effect of the"patent box".From the perspective of innovation factors flow,this paper provides explanation of the mechanism why the"patent box"tax preference policy impacts the high-quality patents flows.After the establishment of the"patent box",corporations can earn more profit from this tax preferential treatment and have a stronger motivation to location in the country where the"patent box"is established.By doing so,corporations form high quality knowledge accumulation in the destinated"patent box"countries,which in turn has a positive impact on the high-quality patent inflow.In addition,due to"patent box"policy,companies release corporate resources that were originally used for tax evasion,resulting in a direct impact on the quality of outflowing patents.This paper expands the relevant research on high-quality development and deepens the theoretical understanding of R&D tax incentives in the international tax research.Specifically,in terms of policy recommendations,this study puts forward the following three primary and urgent recommendations:（1）Adjust the tax rate structure.Based on the conclusions,this paper suggests that China needs to increase the preferential tax rate of corporate income tax.This adjustment will improve China’s international competitiveness,cultivate an internationally competitive business environment,attract global high-quality innovation resources,and retain high-quality local patents to root in China.（2）Optimize types of corporate income tax preferential rate.This paper suggests that China should implement the applicable embedded-use type of patent box,which applies preferential rate on the sales income from firms’patented products.This suggestion will give firms incentives to commercialize innovative outputs,reduce dependence on foreign technology through firm innovation,and utilize patent technology to stimulate China’s economic efficiencies.（3）Adhere to a reasonable patent box applicable threshold.To encourage local R&D and local enterprise transformation,overcome bottom neck technology,build a"Great Wall"of patents knowledge,and facilitate breakthroughs from quantitative change to qualitative change,this paper suggests that patent boxes need appropriate research development in China for companies to qualify patent box treatment.