Does Public Country-by-Country Reporting Deter Tax Avoidance and Income-Shifting? Evidence From Capital Requirements Directive IV

Income Shifting Strategy as a Reaction of Corporate Tax Rate Reduction and the Role of Auditors

“…Jansky and Prats [15] found evidence that multinational companies in developing countries significantly carry out income shifting through transfer prices between subsidiaries by shifting income to companies in countries with lower tax rates and shifting expenses to companies in countries with higher tax rates. This finding is in line with the results of Outslay and Persson [16] research for multinational companies in the US.…”

The Effect of Mandatory Extraction Payment Disclosures on Corporate Payment and Investment Policies Abroad

“…13 De Simone and Olbert [2020] and Joshi [2020] study how large European multinational firms change their tax behavior after being required to privately report tax information to Western tax authorities on a CbC basis. Joshi, Outslay, and Persson [2020] and Overesch and Wolff [2019] examine the tax implications of public CbC reporting by European multinational banks. These papers find that public and private CbC reporting reduce tax avoidance and taxmotivated income shifting among regulated firms in developed countries.…”

Can European Banks’ Country-by-Country Reports Reveal Profit Shifting? An Analysis of the Information Content of EU Banks’ Disclosures

“…The reaction is especially pronounced for banks particularly exposed to the increase in transparency through their activities in distinct tax havens. Joshi et al (2018) observe a substitution of profit shifting activities between financial and industrial affiliates, the latter of which they consider not to fall under the scope of the CRD IV, leaving the overall level of corporate tax avoidance unchanged. Brown et al (2019) analyze the interplay between CbCR and geographic segment reporting in EU banks' financial statements.…”

“…A few papers analyze the reaction of affected firms and show that they adjusted their tax avoidance behavior to some extent. Overesch and Wolff (2019) and Joshi et al (2018) focus on the effect of Article 89 CRD IV on the tax planning activities of multinational banks. Overesch and Wolff (2019) document increases in the effective tax burdens of multinational banks headquartered in the EU compared to different control groups unaffected by the Directive.…”

“…First, we shed light on the effectiveness of CbCR. While a few recent studies analyze the impact of CbCR on EU banks' tax avoidance behavior (Joshi et al 2018;Overesch and Wolff 2019) and on their stock prices (Dutt et al 2019), empirical evidence on the information content of the published data itself is at an early stage (Bouvatier et al 2018;Fatica and Gregori 2018;Janský 2018). We provide comprehensive descriptive evidence on the CbCR data published by more than 100 EU banks and apply refined regression specifications to estimate the tax sensitivity of reported profits.…”