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

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.