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Effects of Corporate Transparency on Tax Avoidance: Evidence from Country-by-Country Reporting

Author

Listed:
  • Tijmen Tuinsma

    (Leuven Economics of Education Research, Katholieke Universiteit Leuven, Leuven, Belgium.)

  • Kristof De Witte

    (Leuven Economics of Education Research, Katholieke Universiteit Leuven, Leuven, Belgium & UNU-MERIT, Maastricht University, Maastricht, The Netherlands.)

  • Petr Janský

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

  • Miroslav Palanský

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

  • Vitezslav Titl

    (Leuven Economics of Education Research, Katholieke Universiteit Leuven, Leuven, Belgium & Utrecht University School of Economics, Utrecht University, Utrecht, The Netherlands.)

Abstract

Private Country-by-Country Reporting (CbCR) is a measure against tax avoidance by large multinationals, implemented throughout the EU in 2016. Multinational companies with an annual revenue over EUR 750 million have been required to report their global activities on a country-by-country basis to tax authorities. Using this cutoff in a sharp regression discontinuity design, we find causal evidence for an increase in effective tax rates for affected companies, indicating an increase in tax compliance. We estimate the increase in effective tax rates at 5 to 6 percentage points locally. However, significant cross-sectional variation is present: the most aggressive multinationals with tax haven affiliates are at most moderately affected, while almost the full effect is concentrated in medium-aggressive firms. From a policy perspective, the results suggest that while CbCR was effective in combating some forms of tax avoidance, profit shifting opportunities in tax havens mostly negate this effect.

Suggested Citation

  • Tijmen Tuinsma & Kristof De Witte & Petr Janský & Miroslav Palanský & Vitezslav Titl, 2023. "Effects of Corporate Transparency on Tax Avoidance: Evidence from Country-by-Country Reporting," Working Papers IES 2023/04, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Feb 2023.
    • Handle: RePEc:fau:wpaper:wp2023_04
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    File URL: https://ies.fsv.cuni.cz/en/veda-vyzkum/working-papers/6735
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    Cited by:

    1. Sarah Godar & Giulia Aliprandi & Tommaso Faccio & Petr Janský & Katia Toledo Ruiz, 2024. "The long way to tax transparency: lessons from the early publishers of country-by-country reports," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(2), pages 593-634, April.

    More about this item

    Keywords

    corporate tax avoidance; tax havens; financial transparency;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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