Public pressure works: new report

We’ve been emailed a paper entitled Public Pressure and Corporate Tax Behavior, Scott D. Dyreng of the Fuqua School of Business Duke University; Jeffrey L. Hoopes of Fisher College of Business Ohio State University; and Jaron H. Wilde, of Tippie College of Business University of Iowa.

The abstract notes:

“We examine whether public pressure related to compliance with subsidiary disclosure rules influences corporate tax behavior. . . . ActionAid International, a non- profit, conducted an investigation to identify which FTSE 100 firms were not complying with rules requiring firms to disclose the full list of their subsidiaries. ActionAid then petitioned the Companies House of the U.K. to enforce the disclosure rule.

ActionAid 2011

 

The original ActionAid campaign is here.

And the results?

“This pressure resulted in nearly 100 percent compliance with the disclosure requirement. We find firms that were newly required to disclose a full subsidiary list decreased their tax avoidance and use of tax havens. We also find the decrease in tax avoidance for noncompliant firms in the post-pressure period is most pronounced in the subsample of firms that experience a decrease in the percentage of total subsidiaries located in small (“dot”) tax haven countries, which are generally considered tax havens that provide significant tax benefits but very limited operational benefits In combination, the evidence suggests that public pressure related to subsidiary disclosure can have a significant effect on the tax avoidance activities and subsidiary location decisions of large publicly-traded firms.”

This will encourage us and many others to keep the pressure up.

Endnote: one may think that this pressure may merely have made companies hide their tax haven activity, rather than stopping it. But the paper notes:

“In contrast to U.S. regulations that only require disclosure of significant subsidiaries, the U.K.’s Companies Act of 2006 (“Companies Act”) requires firms to disclose the name and location of all subsidiaries, regardless of size or materiality.”

 

 


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