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

This study investigates the impactof mandatory public country-by-country reporting (CbCR) on European banks’engagement in tax and regulatory havens characterized by financial secrecy. Employing adifference-in-differencesapproach, we findthat following the introduction of CbCR, European banks reduced theirnumber oftax haven subsidiaries by approximately one-third compared to insurers, which wereexempt from the disclosure requirement. Further analysis revealsthat this decline is primarily driven by withdrawals from economically insignificant “dot tax havens”andfromcountries that serve as both tax andregulatory 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 promptswithdrawalsfrom low-tax locations but only under specific conditions. Public CbCR curtailstax havenpresence when both financialsecrecy and reputational concernsare at play,but on itsown may not curb tax haven use. These insightscontribute to ongoingtax policy debatesby highlighting the limitations and conditional effectiveness of transparency-driven regulations.