County by County Translational Research

Real Effects of Private Country-by-Country Disclosure

Sunday September 1, 2019

Abstract

We investigate the effects of mandatory private Country-by-Country (CbC) disclosure to tax authorities on economic activity. Using rich data on the operations of multinational firms, we exploit the threshold-based application of this 2016 disclosure rule in a regression discontinuity design. We find evidence that firms affected by the disclosure mandate reduce ownership in tax haven subsidiaries relative to unaffected firms and thereby increase transparency in their previously opaque organizational structure. We also document that affected firms invest less in aggregate employment on average relative to unaffected firms but do not appear to alter consolidated tax payments. However, affected firms increasingly allocate revenue, employment, total assets, and, correspondingly, tax payments to subsidiaries in European low-tax countries. Collectively, our findings suggest that mandatory CbC disclosure curbs the most aggressive tax planning achieved through tax haven operations but has likely unintended adverse effects on other real economic activities.

De Simone, Lisa and Olbert, Marcel (October 2019)