A discussion and a case study of the EU Accounting and Transparency Directives Niels Johannesen Associate Professor Dan Thor Larsen MSc Candidate in Economics Department of Economics ID: 791858
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The Power of Transparency in TaxationA discussion and a case study of the EU Accounting and Transparency Directives
Niels Johannesen, Associate Professor Dan Thor Larsen, M.Sc Candidate in EconomicsDepartment of Economics
Department of Economics
The Power of Transparency
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Slide2The recent transparency wave in international taxation
Information exchange between countriesLeaks revealing the hidden practices of non-compliance Tax information in fiscal reportingDepartment of Economics
The Power of Transparency
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Slide3How can transparency be beneficial?Tax authorities may detect more non-compliance
Consumers may punish non-compliant firms Tax payers may become more compliantVoters may punish corrupt or inept politicians
Policies may improve
Department of Economics
The Power of Transparency
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Slide4Empirical evidence IJohannesen and Zucman (AEJPol, 2014):
Exchange of bank information with tax havens induced significant responses by owners of offshore wealth Transparency that facilitates detection of non-compliance is a potentially powerful tool
Department of Economics
The Power of Transparency
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Slide5Empirical evidence IIHanlon and Slemrod (JPubE, 2009):
News stories about corporate tax avoidance cause drop in stock price – larger effect for retail firms Consumers seem to punish firms involved in tax avoidance
Department of Economics
The Power of Transparency
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Slide6Empirical evidence IIIBø, Slemrod and Thoresen (WP, 2014):
Online publication of tax records cause increase in reported income by small business owners The public can make inference about tax avoidance and ”shame” firms to become compliantDepartment of Economics
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Slide7How can country-by-country reporting be useful?Does not reveal information that can be used directly in tax audits
Could potentially discipline (retail) firms if they fear consumer reactionsCould potentially discipline governments to improve tax rules and enforcementDepartment of Economics
The Power of Transparency
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Slide8The EU Accounting and Transparency Directives
Signed into law in June & October 2013- Member states deadline: 20 July 2015EU-listed enterprises in the extractive industryDisclosure requirements:
All payments to each government made per project:
- taxes, fees, infrastructure improvements…
Department of Economics
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Slide9MethodologyDoes the adoption of CBCR constrain the tax planning of multinational enterprises?
If so, then stock price will fall, due to lower future expected profits (after-tax)Event study: Analyze stock price movement around important legislative events- Compare returns of affected enterprises (EU) to returns of unaffected enterprises (non-EU)
Department of Economics
The Power of Transparency
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Slide10Event timeline
Department of Economics
The Power of Transparency
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June 12, 2013
EP adopts the directives
JAN 2013
JAN 2012
JAN 2014
April 10, 2013
EP, Council and Commission reaches agreement on directives
September 18, 2012
Committee on Legal Affairs’ approval of requirements of CBC- and PBP-reporting announced
September 13, 2011
EP adopts the IRE Committee’s call for CBC- and PBP-reporting
March 8, 2011
EP adopts the Development Committee’s call for CBC-reporting
JAN 2011
Slide11Results
Department of Economics
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Slide12Results
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Slide13InterpretationsConservative:
Legislative events did not surprise investors Gradual adjustment of stock pricesLegislative events did
surprise investors, but no real effect on future profits Directive not effective
Bold:
Legislative events did surprise investors
Directive has an effect
Department of Economics
The Power of Transparency
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