The Impact of Country-by-Country Reporting on Corporate Tax Avoidance

Within the framework of the OECD BEPS initiative many countries introduced nonpublic country-by-country reporting for MNEs above a revenue threshold. The reports provide tax authorities with information on the global activities of multinationals at a country level. This paper investigates the responses of companies to country-bycountry reporting and tests whether the goal of a reduction in tax avoidance is achieved. Difference-in-difference estimations show an increase in consolidated effective tax rates of about one percentage point in the treatment group and provide evidence for a reduction in profit shifting at the subsidiary level. Responses are more pronounced for companies experiencing a stronger increase in detection probability. At the same time, total tax payments do not rise, which may be explained by a decrease in economic activity of companies in scope. The second part of the paper investigates avoidance of the disclosure obligation and documents substantial excess mass just below the revenue threshold in the post-reform years. This effect is stronger for company types with higher costs of CbCR and lower costs of adjusting revenues.