The effect of mandatory extraction payment disclosures on corporate tax avoidance: evidence from the United Kingdom

The study investigates whether mandatory extraction payment disclosures (EPD), a policy intervention involving Country-by-Country Reporting (CbCR) in extractive industries, affects corporate tax avoidance. Based on a sample of firms listed on the London Stock Exchange over the period from 2010 to 2021, and using the Difference-in-Differences (DiD) model including firm and year fixed effects, results showed a decline in the level of tax avoidance of British extractive firms post-EPD requirement implementation, relative to U.S. extractive/British manufacturing firms not subject to such a requirement. The findings highlight one of the unstated positive consequences of the EPD regulation implementation including discouraging tax avoidance. They should be informative to tax authorities and civil society as they continue to refine existing disclosure requirements and combat tax avoidance. They also support the U.S. Government Accountability Office (GAO)’s (2008) and Organization for Economic Cooperation and Development (OECD)’s (2015) arguments that CbCR facilitates understanding of corporate tax practices.