No. 93: Incentive effects of tax transparency: Does country-by-country reporting call for arbitration?


This paper analyzes the effects of fiscal authorities’ improved information endowment due to country-by-country reporting (CbCR). We focus on tax audit incentives and on the total tax payments of multinational enterprises (MNE). Extending that, we investigate the interplay between CbCR and mandatory international arbitration. Our results show that tax audit quality in the high-tax country increases under CbCR, because better information increases the effectiveness of the audit. Moreover, they suggest that arbitration effects on tax audit quality depend on the arbitration procedure in place. While a “final-offer” approach only incentivizes audits in the high-tax country, the “independent opinion” approach can entail high-quality audits in both countries. Our findings inform the ongoing policy debate about global fiscal regulations and the growing literature about the interdependencies between firm-level tax policies, national fiscal enforcement, and international fiscal cooperation.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, WHU – Otto Beisheim School of Management, ESMT Berlin, Goethe University Frankfurt and Carl von Ossietzky University Oldenburg who share the same research agenda.