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

Journal of Accounting Research, Volume 58, Issue 2 (2020)

Posted: 1 Jul 2020

See all articles by Preetika Joshi

Preetika Joshi

York University - Schulich School of Business

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Date Written: May 1, 2020

Abstract

To combat tax avoidance by multinational corporations, the Organisation for Economic Co‐operation and Development introduced country‐by‐country reporting (CbCr), requiring firms to provide tax authorities with a geographic breakdown of their profitability and activities. Treating the introduction of CbCr in the European Union as a shock to private disclosure requirements, this study examines the effect on corporate tax outcomes. Exploiting the €750 million revenue threshold for disclosure and employing regression‐discontinuity and difference‐in‐differences designs, I document a 1–2 percentage point increase in consolidated GAAP effective tax rates among affected firms. I also find evidence consistent with a decline in tax‐motivated income shifting, starting in 2018. These results suggest that, although private geographic disclosures can deter corporate tax avoidance, so far, the regulations have had a limited effect on tax‐motivated income shifting. My findings have policy implications for the global implementation of private CbCr and extend the debate on public versus private disclosure of tax information.

Keywords: tax transparency; private tax disclosure regulations; corporate taxation; tax avoidance; income shifting; reputation cost

JEL Classification: G38; G39; H20; H25; H26

Suggested Citation

Joshi, Preetika, Does Private Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from BEPS Action Item 13 (May 1, 2020). Journal of Accounting Research, Volume 58, Issue 2 (2020), Available at SSRN: https://ssrn.com/abstract=3622579

Preetika Joshi (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
4165094858 (Phone)

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