Private Country-by-Country Reporting and the Misalignment between Profits and Economic Activity

Believing that opacity in tax reporting enables international tax avoidance, the OECD
introduced private country-by-country reporting (CbCR) whereby firms report the geographic
breakdown of key financial metrics to tax authorities. The European Union implemented
mandatory CbCR in 2016 for firms with consolidated revenues over =C750 million.
We exploit this threshold and use a non-parametric regression discontinuity design
to examine the effect of CbCR on the location of firms' profits and real activity. We find
consistent evidence that firms reduced the misalignment between profit and activity in
response to CbCR. We show that affiliates in non-haven countries with high activity and
low profits (outbound profit shifters) prior to CbCR reduce their misalignment by decreasing
fixed assets. Our findings have important policy implications for assessing the
effectiveness of CbCR.