Banks’ tax disclosure, financial secrecy, and tax haven heterogeneity

57 Pages Posted: 24 Jan 2020 Last revised: 21 Aug 2021

See all articles by Eva Eberhartinger

Eva Eberhartinger

Vienna University of Economics and Business

Raffael Speitmann

Vienna University of Economics and Business

Caren Sureth-Sloane

Paderborn University; Vienna University of Economics and Business; TRR 266 Accounting for Transparency

Date Written: August 2021

Abstract

This study investigates the effect of mandatory public Country-by-Country Reporting (CbCR) for European banks on their presence in tax and regulatory havens. We find that the number of subsidiaries of European banks in tax havens declines significantly after the introduction of mandatory public CbCR in contrast to insurance firms that need not disclose. We document that this decline is mainly driven by a reduction of subsidiaries in small countries with little economic substance (“dot havens”) and in tax havens that are regulatory havens at the same time, i.e., with high financial secrecy. Further, we find that high exposure to reputational risk is a major amplifier of reorganizational activities. Our results explain prior mixed evidence and document that CbCR effectively curbs tax haven presence only under specific circumstances, i.e., in countries offering both tax shelter and financial secrecy, and more strongly for banks with high reputational risk. These findings suggest that increased tax disclosure on banks does not effectively attenuate tax haven presence per se, but only for a subset of havens and banks. Policymakers need to be aware of these limitations, especially during the current discussion of extending public CbCR to all large multinationals.

Keywords: financial secrecy, real effects, reputational risk, tax haven, tax disclosure

JEL Classification: F23, G18, G21, G22, H20, H25, H32, M48

Suggested Citation

Eberhartinger, Eva and Speitmann, Raffael and Sureth-Sloane, Caren, Banks’ tax disclosure, financial secrecy, and tax haven heterogeneity (August 2021). WU International Taxation Research Paper Series No. #2020-01 , Available at SSRN: https://ssrn.com/abstract=3523909 or http://dx.doi.org/10.2139/ssrn.3523909

Eva Eberhartinger

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna 1020
Austria

HOME PAGE: http://www.wu.ac.at

Raffael Speitmann (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Caren Sureth-Sloane

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

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