Is Mandatory Country-by-Country Reporting Effective? – Early Evidence on the Economic Responses by Multinational Firms

Over the past decade, policymakers, non-profit organizations, and the media have demanded greater transparency by multinational firms regarding their global operations and tax payments. These demands are motivated by the assumption that multinational firms engage in aggressive planning strategies to minimize their global tax bill, for instance through operations in tax havens and profit shifting to low-tax jurisdictions. Accordingly, tax transparency is high on the political agenda. The political action resulted in the OECD proposal to require multinational firms to dis¬close their global operations and tax payments on a country-by-country basis to tax authorities. Since 2016, such country-by-country reporting (CbCR) is mandatory for firms operating in the Eu¬ropean Union. While the EU policymakers adopted CbCR primarily in response to perceived harm¬ful tax practices of multinational corporations, the effects of such increased disclosure on corpo¬rate decisions is an open but economically and politically relevant question as firms might not only alter their tax strategies but also change their real global footprint in terms of investment in assets or employees.

De Simone, Lisa, Marcel Olbert and Christoph Spengel (2019), Is Mandatory Country-by-Country Reporting Effective? – Early Evidence on the Economic Responses by Multinational Firms, ZEW policy brief No. 19-05, Mannheim