Real Effects of Public Country-by-Country Reporting and the Firm Structure of European Banks

Eberhartinger, Eva; Speitmann, Raffael; Sureth-Sloane, Caren

doi:10.2139/ssrn.3523909

Cited by 12 publications

(7 citation statements)

References 83 publications

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“…In addition to previous studies, we show that the response to public CbCR depends on the individual exposure of a firm and that only exposed firms reduce their tax avoidance. Our findings are also in line with recent work by Eberhartinger et al (2020), who document a declining number of banks' affiliates in tax havens since the introduction of public CbCR.…”

Section: Introductionsupporting

confidence: 93%

Financial Transparency to the Rescue: Effects of Public Country‐by‐Country Reporting in the European Union Banking Sector on Tax Avoidance*

Overesch

Wolff

2021

Contemporary Accting Res

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We analyze the effect of mandatory financial transparency on corporate tax avoidance. The effectiveness of comprehensive tax transparency, in the form of a public country‐by‐country reporting, to mitigate corporate tax planning is largely unknown. Capital Requirements Directive IV by the European Commission required multinational banks to publish key financial and tax data in the form of public country‐by‐country reporting. We examine tax avoidance of banks around the reform. Our focus is on multinational banks newly required to report activities in tax havens that had not been publicly disclosed before the country‐by‐country reporting mandate. We predict and find that these exposed banks increased their tax expense relative to multinational banks with no activities in tax havens to disclose, as well as relative to domestic banks unaffected by the new mandate. In additional tests, we compare our sample of exposed multinational banks to several control groups from the financial sector and other industries. Our results suggest that country‐by‐country reporting can serve as an additional policy instrument to curb corporate tax avoidance, but only when the reporting exposes the firms' tax sheltering activities to public scrutiny.

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Section: Introductionsupporting

confidence: 93%

Financial Transparency to the Rescue: Effects of Public Country‐by‐Country Reporting in the European Union Banking Sector on Tax Avoidance*

Overesch

Wolff

2021

Contemporary Accting Res

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“…A few recent studies analyze the effectiveness of Article 89 of the CRD IV. They document that EU banks adapted their tax avoidance behavior to some extent (Joshi et al, 2020;Overesch & Wolff, 2020) and reduced their presence in tax havens (Eberhartinger et al, 2020) in response to CbCR. However, the findings of Dutt, Ludwig et al (2019) suggest an overall zero response of the capital market to the introduction of the disclosure obligation.…”

Section: Which Containsmentioning

confidence: 99%

“…(2020) document a decline in income shifting by financial affiliates, but find that the magnitude of corporate tax avoidance at bank group level did not change materially. 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.…”

Section: Related Literaturementioning

confidence: 99%

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

2021

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The public CbCR requirement for EU financial institutions leaves leeway to the reporting firms as regards the calculating and presentation of the data. Based on a sample of CbCRs published by EU-headquartered multinational bank groups, we analyze the reporting behavior and the degree of transparency across the reports. We observe a large heterogeneity with respect to the place of publication of the CbCR, its content, the readability of the data tables as well as the list of entities that should be published together with the by-country data. We also identify differences between headquarter countries, with CbCRs prepared by bank groups from the United Kingdom and Germany being the most transparent. Inconsistencies in reporting inhibit the interpretability and the comparability of the data. We conclude that the specification of the underlying data source and of the applicable consolidation scope as well the establishment of uniform definitions of the reportable items are essential for an appropriate consideration of the reports by all addressees. Our analyses are particularly important in light of the proposal for a public CbCR for large multinational firms in the EU.

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“…Several studies investigate both public and non-public CbCR and its real effects (R. J. Brown, 2018;Dutt, Ludwig, Nicolay, Vay, & Voget, 2019;Eberhartinger, Speitmann, & Sureth-Sloane, 2020;Joshi, Outslay, & Persson, 2020;Overesch & Wolff, 2017;Simone & Olbert, 2019). While it is known that the information disclosed through CbCR is potentially misleading none of these studies scrutinizes the extend to which misperception impedes transparency and generates undesired implications.…”

Section: Corporate Tax Misperceptionmentioning

confidence: 99%

Tax Misperception and Its Effects on Decision Making – a Literature Review

Blaufus

Chirvi²,

Huber³

et al. 2020

SSRN Journal

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Previous accounting research shows that taxes affect decision making by individuals and firms. Most studies assume that agents have accurate perception regarding their tax burden. However, there is a growing body of literature analyzing whether taxes are indeed perceived correctly. We review 124 studies on the measurement of tax misperception and its behavioral implications. The review reveals that many taxpayers have substantial tax misperceptions that lead to biased decision making. We develop a Behavioral Taxpayer Response Model on the impact of provided tax information on tax perception. Besides individual traits, characteristics of the tax information and the decision environment determine the extent of tax misperception. We discuss opportunities for future research and methodological limitations. While there is much evidence on tax misperception at the individual level, we hardly find any research at the firm level. Little is known about the real effects of managers' tax misperception and on how tax information is strategically managed to impact stakeholders. This research gap is surprising as a large part of the accounting literature analyzes decision making and disclosure of firms. We recommend a mixed-method approach combining experiments, surveys, and archival data analyses to improve the knowledge on tax misperception and its consequences.

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Real Effects of Public Country-by-Country Reporting and the Firm Structure of European Banks

Cited by 12 publications

References 83 publications

Financial Transparency to the Rescue: Effects of Public Country‐by‐Country Reporting in the European Union Banking Sector on Tax Avoidance*

Financial Transparency to the Rescue: Effects of Public Country‐by‐Country Reporting in the European Union Banking Sector on Tax Avoidance*

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

Tax Misperception and Its Effects on Decision Making – a Literature Review

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