THE EFFECTS OF NEWLY INTRODUCED COUNTRY-BY-COUNTRY REPORTING ON AGGRESSIVE TAX AVOIDANCE: EVIDENCE FROM EUROPEAN BANKS

Abstract

This study investigates the effects of enhanced tax transparency on aggressive tax avoidance using Country-by-Country Reporting (CbCR) as the main instrument of tax transparency for deterring and preventing tax avoidance by multinational companies. We find strong empirical evidence on decreased aggressive tax avoidance by European Union multinational banks in the post-implementation period (2014–2018). We also document that banks with full CbCR implementation are less engaged in aggressive tax avoidance. Our empirical results make a significant contribution to the science, policy makers, Organisation for Economic Co-operation and Development and European Commission in terms of CbCR efficacy and future development of tax avoidance instruments.