Department of Economics
The Power of Transparency in Taxation
A discussion and a case study of the EU Accounting and
Transparency Directives
Niels Johannesen, Associate Professor
Dan Thor Larsen, M.Sc Candidate in Economics
Department of Economics
The Power of Transparency
Slide 1
Department of Economics
The recent transparency wave in international
taxation
• Information exchange between countries
• Leaks revealing the hidden practices of
non-compliance
• Tax information in fiscal reporting
The Power of Transparency
Slide 2
Department of Economics
How can transparency be beneficial?
• Tax authorities may detect more noncompliance
• Consumers may punish non-compliant
firms
 Tax payers may become more compliant
• Voters may punish corrupt or inept
politicians
 Policies may improve
The Power of Transparency
Slide 3
Department of Economics
Empirical evidence I
Johannesen 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
The Power of Transparency
Slide 4
Department of Economics
Empirical evidence II
Hanlon 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
The Power of Transparency
Slide 5
Department of Economics
Empirical evidence III
Bø, 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 compliant
The Power of Transparency
Slide 6
Department of Economics
How 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 reactions
•
Could potentially discipline governments
to improve tax rules and enforcement
The Power of Transparency
Slide 7
Department of Economics
The EU Accounting and Transparency Directives
•
Signed into law in June & October 2013
- Member states deadline: 20 July 2015
•
EU-listed enterprises in the extractive
industry
Disclosure requirements:
•
All payments to each government made
per project:
- taxes, fees, infrastructure
improvements…
The Power of Transparency
Slide 8
Department of Economics
Methodology
•
Does the adoption of CBCR constrain the
tax planning of multinational enterprises?
 If so, then stock price will fall, due to
lower future expected profits (aftertax)
Event study:
•
Analyze stock price movement around
important legislative events
- Compare returns of affected enterprises
(EU) to returns of unaffected
enterprises (non-EU)
The Power of Transparency
Slide 9
Department of Economics
Event timeline
September 13,
2011
EP adopts the
IRE
Committee’s
call for CBCand PBPreporting
March 8, 2011
EP adopts the
Development
Committee’s
call for CBCreporting
JAN
2011
The Power of Transparency
Slide 10
September 18,
2012
Committee on
Legal Affairs’
approval of
requirements
of CBC- and
PBP-reporting
announced
JAN
2012
JAN
2013
April 10, 2013
EP, Council and
Commission
reaches
agreement on
directives
June 12, 2013
EP adopts the
directives
JAN
2014
Department of Economics
Results
Abnormal return around events
4.00%
2.00%
0.00%
-2.00%
-4.00%
-4
Day -3
The Power of Transparency
Slide 11
Day-2
Day-1
Day 0
Day 1
Day2
Day3
Day4
Department of Economics
Results
Abnormal return around events
4.00%
2.00%
0.00%
-2.00%
-4.00%
-4
Day -3
The Power of Transparency
Slide 12
Day-2
Day-1
Day 0
Day 1
Day2
Day3
Day4
Department of Economics
Interpretations
Conservative:
1.
Legislative events did not surprise investors
 Gradual adjustment of stock prices
2.
Legislative events did surprise investors, but no
real effect on future profits
 Directive not effective
Bold:
1.
Legislative events did surprise investors
 Directive has an effect
The Power of Transparency
Slide 13