Patent boxes, research activity and the nexus approach

This study investigates if patent box regimes, which implemented the nexus element as mentioned in Action 5 of the BEPS project, perform better at increasing research activity. The nexus reduces the tax advantages of patent box regimes if part of the research activity is not conducted in the country where the firm registers its patent. We explore the causal impact of this nexus within a Comparative Interrupted Time Series framework during the sample period 2013–2018. We compare treated firms applying the new Belgian patent box with a control group of firms applying the French patent box regime without the nexus element. We find that research activity increases in Belgium, relative to France, after the implementation of the nexus, both in terms of patent applications and inventors. The increase seems to be more pronounced for MNEs, suggesting that relocating research activity to countries imposing a nexus seems not too costly.