Transparency in Financial Reporting: Is Country-by-Country Reporting suitable to combat international profit shifting?


Evers, Maria Theresia ; Meier, Ina ; Spengel, Christoph


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URL: https://ub-madoc.bib.uni-mannheim.de/35628
URN: urn:nbn:de:bsz:180-madoc-356280
Document Type: Working paper
Year of publication: 2014
The title of a journal, publication series: ZEW Discussion Papers
Volume: 14-015
Place of publication: Mannheim
Publication language: English
Institution: Business School > ABWL u. Betriebswirtschaftliche Steuerlehre II (Spengel)
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: H20 , H26 , F23 , K34 , M41,
Keywords (English): tax avoidance , profit shifting , multinational firms , tax reform , tax reporting , country-by-country reporting , international transfer pricing
Abstract: Aggressive tax planning efforts of highly profitable multinational companies (Base Erosion and Profit Shifting (BEPS)) have recently become the subject of intense public debate. As a response, several international initiatives and parties have called for more transparency in financial reporting, especially by means of a country-specific reporting of certain tax information (Country-by-Country Reporting (CbCR)). In our paper, we demonstrate that neither consolidated nor individual financial accounts seem to be an appropriate platform to provide such country-specific information and, therefore, that CbCR cannot be based on extended financial accounting standards. Moreover, we argue that even separate CbCR templates do not prevent multinationals from profit shifting, since their common tax minimization strategies are mainly based on the legal exploitation of gaps and loopholes in national and international tax law. In that regard, we show that expected costs for CbCR would exceed expected benefits and therefore contend that CbCR cannot be regarded as a convincing measure to combat international profit shifting. Instead, we argue that tax legislators should limit profit shifting by enforcing national and international tax rules and by closing gaps in tax law. In particular, we call for more tightened and standardized transfer pricing regulations to be adopted at an international level.

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Evers, Maria Theresia ; Meier, Ina ; Spengel, Christoph (2014) Transparency in Financial Reporting: Is Country-by-Country Reporting suitable to combat international profit shifting? Open Access ZEW Discussion Papers Mannheim 14-015 [Working paper]
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