Could Country-by-Country Reporting Increase Profit Shifting?

Ruby Doeleman, Dominika Langenmayr and Dirk Schindler

No 11464, CESifo Working Paper Series from CESifo

Abstract: Since 2016, Country-by-Country reporting has provided tax authorities with detailed information about multinationals’ worldwide activities. It has been hailed as a game-changer for corporate taxation, enabling tax authorities to target multinational firms with high profits in tax havens. We model Country-by-Country reporting as increasing both tax planning and audit costs for profit-shifting multinationals, where the latter costs depend on the share of profits held in tax havens. Then, Country-by-Country reporting makes shifting profits from a high-tax country to a tax haven relatively more attractive than shifting from a low-tax country to a tax haven—a substitution effect. Thus, while the total amount of profits shifted to the tax haven decreases, profit shifting from high-tax affiliates may increase relative to the situation without Country-by-Country reporting. We confirm these changes in profit-shifting patterns using a staggered difference-in-differences design. The opposing effects for low-tax and high-tax countries also help explaining the mixed findings of previous empirical studies on Country-by-Country reporting.

Keywords: country-by-country-reporting; profit shifting; anti-tax-avoidance rules (search for similar items in EconPapers)
JEL-codes: F23 H25 H26 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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