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



Document Type: Conference presentation
Year of publication: 2019
Conference title: TRR 266 Annual Conference
Location of the conference venue: Mannheim, Germany
Date of the conference: 28.-29.11.2019
Publication language: English
Institution: Business School > ABWL insbes. Finance & Accounting (Voget)
Business School > ABWL u. Betriebswirtschaftliche Steuerlehre II (Spengel)
Subject: 330 Economics
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 semi-elasticity 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 Can European banks' country-by-country reports reveal profit shifting? An analysis of the information content of EU banks' disclosures. (2019) TRR 266 Annual Conference (Mannheim, Germany) [Conference presentation]


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