The Effect of U.S. Country-by-Country Reporting on U.S. Multinationals’ Tax-Motivated Income Shifting and Real Activities

61 Pages Posted: 14 Jun 2022 Last revised: 28 Mar 2024

See all articles by Michelle L. Nessa

Michelle L. Nessa

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

Anh Persson

University of Illinois at Urbana-Champaign - Gies College of Business - Department of Accountancy

Jane Z. Song

University of Missouri - Trulaske College of Business

Erin Towery

University of Georgia

Mary Vernon

University of Illinois at Chicago - Department of Accounting

Date Written: February 1, 2024

Abstract

The Organization for Economic Co-operation and Development introduced country-by-country reporting (CbCR) for multinational enterprises (MNEs) to help tax authorities combat tax motivated income shifting. This study uses confidential U.S. tax administrative data from 2011 to 2018 to examine the effect of U.S. CbCR adoption on the tax-motivated income shifting and real activities of U.S. MNEs. We first document that U.S. CbCR provides the Internal Revenue Service with incremental information about the location of U.S. MNEs’ global activities relative to existing U.S. tax return disclosures, but we also observe substantial overlap between U.S. CbCR and existing disclosures. In our main analyses, in contrast with prior CbCR studies in cross-country settings, we do not find evidence of a change in U.S. MNEs’ tax-motivated income shifting or a reallocation of real activities to substantiate reported profits in response to U.S. CbCR using multiple empirical approaches. Overall, our study leverages U.S. tax administrative data to provide insights into the impact of the OECD’s CbCR initiative on U.S. MNEs.

Keywords: Country-by-country reporting, disclosure regulation, BEPS, income shifting, IRS

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

Suggested Citation

Nessa, Michelle L. and Persson, Anh and Song, Jane (Zhiyan) and Towery, Erin and Vernon, Mary, The Effect of U.S. Country-by-Country Reporting on U.S. Multinationals’ Tax-Motivated Income Shifting and Real Activities (February 1, 2024). Available at SSRN: https://ssrn.com/abstract=4130818 or http://dx.doi.org/10.2139/ssrn.4130818

Michelle L. Nessa

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States

Anh Persson

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

291 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States
217.330.8543 (Phone)

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

Jane (Zhiyan) Song

University of Missouri - Trulaske College of Business ( email )

School of Accountancy
Trulaske College of Business
Columbia, MO 65211
United States

Erin Towery (Contact Author)

University of Georgia ( email )

Terry College of Business
Athens, GA 30602-6254
United States

Mary Vernon

University of Illinois at Chicago - Department of Accounting ( email )

601 South Morgan Street
University Hall, Room 2303
Chicago, IL 60607
United States

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