Country-by-Country Reporting: Tension between Transparency and Tax Planning

25 Pages Posted: 8 Feb 2017

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: 2016

Abstract

Aggressive tax planning efforts of highly profitable multinational companies (Base Erosion and Profit Shifting (BEPS)) have become the subject of intense public debate in recent years. As a response, several international initiatives and parties have called for more transparency in financial reporting, especially by means of a Country-by-Country Reporting (CbCR). In line with that, the OECD and the European Commission have recently presented proposals for a comprehensive disclosure of country-specific tax-related information for companies in all industry sectors. In our paper, we demonstrate that neither consolidated or individual financial statements nor other existing data sources seem to be an appropriate basis for providing such country-specific information. Instead, it would be necessary to define detailed and harmonized definitions and regulations to ensure comparability. The discussion on benefits and costs of a CbCR reveals that benefits (at least partially) lack a theoretical foundation and, overall, do not seem to outweigh associated costs. This holds true, in particular, since current tax planning activities are mainly based on the legal exploitation of gaps and loopholes in national and international tax law. Instead, we argue that tax legislators should limit profit shifting by enforcing tax rules and by closing gaps in tax law. In particular, we call for more tightened and standardized transfer pricing regulations and thin-cap rules 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, Country-by-Country Reporting: Tension between Transparency and Tax Planning (2016). ZEW - Centre for European Economic Research Discussion Paper No. 17-008, Available at SSRN: https://ssrn.com/abstract=2913474 or http://dx.doi.org/10.2139/ssrn.2913474

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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