Transparency in Financial Reporting: Is Country-by-Country Reporting Suitable to Combat International Profit Shifting?

25 Pages Posted: 12 Feb 2014

See all articles by Maria Evers

Maria Evers

ZEW – Leibniz Centre for European Economic Research

Ina Meier

University of Mannheim

Christoph Spengel

Centre for European Economic Research (ZEW)

Date Written: February 1, 2014

Abstract

Aggressive tax planning efforts of highly profitable multinational companies (Base Erosion and Profit Shifting (BEPS)) have recently become the subject of intense public debate. As a response, several international initiatives and parties have called for more transparency in financial reporting, especially by means of a country-specific reporting of certain tax information (Country-by-Country Reporting (CbCR)). In our paper, we demonstrate that neither consolidated nor individual financial accounts seem to be an appropriate platform to provide such country-specific information and, therefore, that CbCR cannot be based on extended financial accounting standards. Moreover, we argue that even separate CbCR templates do not prevent multinationals from profit shifting, since their common tax minimization strategies are mainly based on the legal exploitation of gaps and loopholes in national and international tax law. In that regard, we show that expected costs for CbCR would exceed expected benefits and therefore contend that CbCR cannot be regarded as a convincing measure to combat international profit shifting. Instead, we argue that tax legislators should limit profit shifting by enforcing national and international tax rules and by closing gaps in tax law. In particular, we call for more tightened and standardized transfer pricing regulations to be adopted at an international level.

Keywords: tax avoidance; profit shifting; multinational firms; tax reform; tax reporting; country-by-country reporting; international transfer pricing

JEL Classification: H20, H26, F23, K34, M41

Suggested Citation

Evers, Maria and Meier, Ina and Spengel, Christoph, Transparency in Financial Reporting: Is Country-by-Country Reporting Suitable to Combat International Profit Shifting? (February 1, 2014). ZEW - Centre for European Economic Research Discussion Paper No. 14-015. Available at SSRN: https://ssrn.com/abstract=2394035 or http://dx.doi.org/10.2139/ssrn.2394035

Maria Evers (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Ina Meier

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Christoph Spengel

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany

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