Global Tax Transparency and Tax Behaviour: Empirical Evidence for the Effects of Country-By-Country Reporting on Tax Avoidance and Income Shifting

Tax transparency and exchange of information are at the heart of a global effort to tackle aggressive tax planning of multinational corporations (MNCs). Policymakers worldwide, including within the Organisation for Economic Co-operation and Development, the G20 nations, the European Union, the Financial Accounting Standard Board, and the United Nations, have strived to enhance tax disclosures. Even with this push for global tax transparency, evidence is lacking about whether regulations achieve the desired effects. This dissertation examines the corporate tax avoidance and income shifting of European Union MNCs following the adoption of two transparency rules: private country-by-country reporting under Action Item 13 of OECDs base-erosion and profit-shifting project and public country-by-country reporting under Capital Requirements Directive IV.

In examining response to private country by country reporting, I document no significant difference in tax-motivated income shifting in the three-year post-adoption period. However, starting in 2018, I find that affiliates of European Union MNCs engaged in significantly less profit shifting. I also find robust evidence of an increase in effective tax rates of European Union MNCs subject to private country by country reporting. Overall these results suggest that, while the introduction of private country by country reporting led to a significant decline in firm-level tax avoidance, the impact on affiliate-level income shifting has been limited. In examining the effects of public country-by-country reporting, I document a significant decrease in the income shifting by the industrial affiliates of European multinational banks subject to the disclosure requirements.

The findings of this study have important policy implications for the global implementation of country-by-country reporting and extend the debate on public versus private disclosure of tax information.