Does Public Country-by-Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from the European Banking Industry

Posted: 31 Mar 2020

See all articles by Preetika Joshi

Preetika Joshi

York University - Schulich School of Business

Edmund Outslay

Michigan State University - Department of Accounting & Information Systems

Anh Persson

University of Illinois at Urbana-Champaign - Department of Accountancy

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Date Written: March 17, 2020

Abstract

In this study, we examine the effect of increased tax transparency on the tax planning behavior of European banks. In 2014, the European Union introduced public country-by-country reporting requirements to the banking industry. Treating this new requirement as an exogenous shock, we find limited evidence consistent with a decline in income-shifting by the banks’ financial affiliates in the post-adoption period (starting from 2015). We do not, however, find robust evidence of a significant change in the consolidated book effective tax rates among the affected banks. Our findings suggest that increased transparency from public country-by-country reporting can deter tax-motivated income shifting but that it did not appear to materially influence the banks’ overall tax avoidance. Our findings have policy implications for the ongoing debate between the European Parliament, the Organisation for Economic Co-operation and Development, and accounting standard-setting bodies on whether to require multinationals to publish country-by-country reports.

Keywords: public country-by-country reporting, tax transparency, income shifting, tax avoidance

Suggested Citation

Joshi, Preetika and Outslay, Edmund and Persson, Anh, Does Public Country-by-Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from the European Banking Industry (March 17, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3560176

Preetika Joshi

York University - Schulich School of Business ( email )

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Edmund Outslay

Michigan State University - Department of Accounting & Information Systems ( email )

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Anh Persson (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

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HOME PAGE: http://https://giesbusiness.illinois.edu/profile/anh-vuong-persson

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