Does Private Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from BEPS Action Item 13

Abstract

To combat tax avoidance by multinational corporations, the Organisation for Economic Co-operation and Development introduced country-by-country reporting (CbCr), requiring firms to provide tax authorities with a geographic breakdown of their profitability and activities. Treating the introduction of CbCr in the European Union as a shock to private disclosure requirements, this study examines the effect on corporate tax outcomes. Exploiting the Accepted by Douglas J. Skinner. I appreciate the insightful comments and constructive suggestions of two anonymous referees. This paper is based on my dissertation and I received invaluable guidance from my dissertation committee members: P. JOSHI €750 million revenue threshold for disclosure and employing regressiondiscontinuity and difference-in-differences designs, I document a 1-2 percentage point increase in consolidated GAAP effective tax rates among affected firms. I also find evidence consistent with a decline in tax-motivated income shifting, starting in 2018. These results suggest that, although private geographic disclosures can deter corporate tax avoidance, so far, the regulations have had a limited effect on tax-motivated income shifting. My findings have policy implications for the global implementation of private CbCr and extend the debate on public versus private disclosure of tax information.

Does Public Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from the European Banking Industry*

“…10 Such political and public scrutiny is expected to deter them from aggressively shifting profits (Murphy 2009; Tax Notes 2014; Trade Union Advisory Committee 2016; Eurodad 2017). Several academic studies also find empirical evidence supporting these arguments (e.g., Joshi 2019;Mills 1998). In recent work,…”

On the Determinants and Effects of Corporate Tax Transparency: Review of an Emerging Literature

“…So far, three concurrent studies examine the effect of the regulation on corporate outcomes. Early evidence supports the conjecture that the increased detection risk alters the net benefits of tax avoidance (Hugger, 2020;Joshi, 2020). The studies find that regulated firms exhibit a 1-2 percentage point increase in consolidated ETRs relative to firms not subject to CbCR.…”

Reporting Behavior and Transparency in European Banks’ Country-by-Country Reports

“…Concerning real effects, Eberhartinger et al (2020) observe a reduction in European banks' presence in tax havens, especially in so-called Dot Havens and tax havens where financial secrecy is high. With regard to the confidential CbCR for large multinational firms established by the OECD for financial years starting on or after 1 January 2016 (OECD, 2015), Hugger (2020) and Joshi (2020) document that the effective tax rates of firms subject to the disclosure requirement increase in response to the CbCR introduction and that the extent of profit shifting declines. 8 Hugger (2020) also observes that companies try to avoid the CbCR obligation by adjusting their revenues below the reporting threshold of EUR 750 million.…”