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

60 Pages Posted: 6 Oct 2019

See all articles by Preetika Joshi

Preetika Joshi

York University - Schulich School of Business

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Date Written: May 1, 2019

Abstract

To combat tax avoidance by multinational corporations, the Organisation for Economic Cooperation and Development introduced country-by-country reporting, requiring firms to provide tax authorities with a geographic breakdown of their profitability and activity. Treating the introduction of country-by-country reporting in the European Union as a shock to private disclosure requirements, this study examines the effect on corporate tax outcomes. Exploiting the €750M threshold and employing a regression discontinuity and difference-in-difference design, I document a 1%–2% increase in consolidated GAAP effective tax rates of the affected firms. I also find some evidence consistent with a decline in tax-motivated income shifting starting in 2018. These results suggest that while private geographic disclosures can have a deterrent impact on overall corporate tax avoidance, the regulations have so far had a limited effect on tax-motivated income shifting. The findings of this study have important policy implications for the global implementation of private country-by-country reporting and add to the ongoing debate on public versus private disclosure of tax information.

Keywords: country-by-country reporting; tax transparency; corporate disclosures; tax avoidance; public pressure; detection risk; political cost; firm value; market response; activity level; income shifting; misalignment

JEL Classification: M41

Suggested Citation

Joshi, Preetika, Does Private Country-by-Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from BEPS Action Item 13 (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=3347499 or http://dx.doi.org/10.2139/ssrn.3347499

Preetika Joshi (Contact Author)

York University - Schulich School of Business ( email )

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