The interplay between mandatory country-by-country reporting, geographic segment reporting, and tax havens: Evidence from the European Union

Rodney J. Brown*, Bjorn N. Jorgensen, Peter F. Pope

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

17 Citations (Scopus)

Abstract

We investigate whether mandatory public country-by-country reporting (CBCR) by European Union (EU) banks affects geographic segment reporting. We find no significant change in the reported number of geographic segments, country segments, or line items per geographic segment disclosed in segment reporting notes after the introduction of CBCR. Consistent with the notion that EU banks may aggregate geographic segments to obfuscate tax haven activities, we find a positive association between tax haven intensity and geographic segment aggregation. Further, we document the location of banks’ operations and the extent of their economic presence in tax havens. We find that EU banks report significantly higher profit margins, turnover per employee, and profit per employee, and lower book effective tax rates for operations located in tax havens, relative to non-tax havens. Our evidence suggests that mandatory public CBCR has limited impact on geographic segment reporting. Nevertheless, CBCR provides additional information to better identify the existence and scale of tax haven involvement. Our results should be informative for EU policymakers currently considering the expansion of public CBCR to all industries. They might also be relevant to researchers considering the decision usefulness of CBCR for financial statement users in estimating after-tax profitability and tax enforcement risk.

Original languageEnglish
Peer-reviewed scientific journalJournal of Accounting and Public Policy
Volume38
Issue number2
Pages (from-to)106-129
Number of pages24
ISSN0278-4254
DOIs
Publication statusPublished - 2019
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • Country-by-country reporting
  • Financial institutions
  • Geographic disclosures
  • IFRS 8
  • Mandatory disclosure
  • Segment reporting
  • Tax havens
  • Transparency

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