Investigating the impact of country-by-country reporting on effective tax rates: Exploratory evidence from listed South African multinational groups

Cara Thiart

South African Journal of Accounting Research, 2022, vol. 36, issue 1, 45-56

Abstract: Background: Following the global initiative to curb base erosion and profit shifting, South Africa introduced Country-by-Country (CbC) reporting standards for South African multinational groups with an effective date of 1 January 2016.Aim: The study aims to develop and analyse indicators to investigate the impact of CbC reporting on the effective tax rate of South African multinational groups.Setting: The research focused on a selection of Johannesburg Stock Exchange (JSE)-listed companies, using financial data retrieved from the IRESS Expert database.Methods:Descriptive analyses were conducted on five developed measurable indicators. These indicators comprise the analysis of the average ETR of multinational groups through various approaches.Results: A comparison of the average consolidated effective tax rate (ETR) between multinational and non-multinational groups found a higher ETR for the multinational groups. The average consolidated ETR of multinational groups with a filing obligation was significantly higher than the average consolidated ETR of multinational groups without such an obligation. A comparison was conducted on the average consolidated ETR of multinational groups with a filing obligation between two stages, namely pre- and post-CbC reporting implementation. The results of this comparison revealed a highly significant increase in the average consolidated ETR of multinational groups post-CbC implementation as opposed to the ETR pre-implementation. No significant difference was found between the average consolidated ETR of multinational groups with at least one affiliate in a tax haven, as compared to those without. A comparison of the average foreign unconsolidated ETR found a significantly lower average foreign ETR for multinational groups than the consolidated overall ETR of multinational groups. In line with the study’s earlier result, namely a higher consolidated ETR for multinational groups with a filing obligation compared to their counterparts with no filing obligation, the foreign ETR of multinational groups with a CbC filing obligation was found to be significantly higher than the foreign ETR of those without a filing obligation. Similarly, the foreign ETR of multinational groups was significantly higher in the years post-CbC reporting implementation, as compared to the foreign ETR pre-implementation.Conclusion: Based on the study’s findings that reveal a general increase in the average consolidated ETR per specific indicators, a possible explanation for such findings may point to CbC reporting requirements.

Date: 2022
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DOI: 10.1080/10291954.2020.1860483

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