Can European banks' country-by-country reports reveal profit shifting? An analysis of the information content of EU banks' disclosures


Dutt, Verena ; Nicolay, Katharina ; Vay, Heiko ; Voget, Johannes


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URL: https://madoc.bib.uni-mannheim.de/53432
URN: urn:nbn:de:bsz:180-madoc-534329
Document Type: Working paper
Year of publication: 2019
The title of a journal, publication series: ZEW Discussion Papers
Volume: 19-042
Place of publication: Mannheim
Publication language: English
Institution: Business School > Betriebswirtschaftliche Steuerlehre, insb. Unternehmensbesteuerung (Juniorprofessur) (Nicolay 2016-)
Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
Business School > ABWL insbes. Finance & Accounting (Voget)
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: H25 , H26 , G21 , G28,
Keywords (English): tax avoidance , profit shifting , country-by-country reporting , public disclosure , tax transparency , financial institutions , database
Abstract: We create a novel database of hand-collected information from the country-by-country reports (CbCRs) of more than 100 multinational bank groups headquartered in the EU for 2014-2016. We compare this new dataset with information from Orbis and Bank Focus to assess in how far the new disclosure obligation increased transparency on banks’ tax avoidance behavior. Our descriptive analysis shows that CbCRs uncover a large fraction of worldwide profits and real activities in terms of employees of EU bank groups, especially in tax havens. We also document a striking disconnect between reported profits and real activity, noting considerable heterogeneity between different tax havens and bank groups from different headquarter countries. Regression analysis based on CbCR data and Bank Focus data leads us to expect a tax semielasticity of banks’ reported profits of about -4.6. In this regard, CbCRs are indicative of a more pronounced tax sensitivity than conventional databases suggest. However, the lack of important economic variables (total assets and staff cost) impedes an exact estimation of banks’ profit shifting based on CbCR data alone and with standard methods. These insights are especially relevant in the context of the ongoing political discussions whether to introduce a public CbCR for all large multinational firms in the EU.

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Dutt, Verena ; Nicolay, Katharina ; Vay, Heiko ; Voget, Johannes (2019) Can European banks' country-by-country reports reveal profit shifting? An analysis of the information content of EU banks' disclosures. Open Access ZEW Discussion Papers Mannheim 19-042 [Working paper]
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