Banks’ tax disclosure, financial secrecy, and tax haven heterogeneity

This study investigates the impact of mandatory public country-by-country reporting (CbCR) on European banks‘ engagement in tax and regulatory havens characterized by financial secrecy. Employing a difference-in-differences approach, we find that following the introduction of CbCR, European banks reduced their number of tax haven subsidiaries by approximately one-third compared to insurers, which were exempt from the disclosure requirement. Further analysis reveals that this decline is primarily driven by withdrawals from economically insignificant „dot tax havens“ and from countries that serve as both tax and regulatory havens. Additionally, we observe that banks with low exposure to reputational risk prior to the reform are more likely to reduce their presence in bank havens. These results reveal that public CbCR prompts withdrawals from low-tax locations but only under specific conditions. Public CbCR curtails tax haven presence when both financial secrecy and reputational concerns are at play, but on its own may not curb tax haven use. These insights contribute to ongoing tax policy debates by highlighting the limitations and conditional effectiveness of transparency-driven regulations.