The Flaw in the Plan: Information Transparency and International Tax Avoidance Channels

Multinational corporations (MNCs) frequently engage in profit shifting by taking advantage of tax rate differences across countries. Increasing the transparency of these corporations is an effective way to combat profit shifting. However, does transparency have the same impact on all types of tax avoidance? In this paper, we examine the impact of information transparency on the tax avoidance channels of MNCs, treating the implementation of Country-by-Country Reporting (CbCR) as a shock to private disclosure requirements. We show that the introduction of CbCR leads to an increase in effective tax rates among treated firms, although the effect diminishes over time. We also find evidence of a decline in non-financial tax avoidance channels following the introduction of CbCR, with an increase in financial channels by MNCs. Finally, the heterogeneous analysis shows that the tax avoidance behavior is weaker in tax havens.