Who benefits from anti-international tax avoidance? Evidence from country-by-country reporting

Anti-international tax avoidance policies have significantly reduced multinational corporations’ (MNCs) profit-shifting practices. However, the ultimate destination of these retained profits remains unclear. To address this gap, we develop a two-country tax destination model that demonstrates how strengthened anti-tax avoidance measures prompt MNCs to retain more profits domestically, thereby differentially benefiting various economic actors. Using a difference-in-differences (DiD) methodology, we exploit the exogenous introduction of Country-by-Country Reporting (CbCR) in China, leveraging data on A-share listed companies from 2010 to 2019. Our empirical findings reveal that the implementation of CbCR significantly enhances income for governments and shareholders, while leaving employee wages largely unaffected. Mechanism analyses indicate that CbCR effectively increases domestic profits by reducing international profit shifting and corporate tax avoidance. However, differing profit-sharing mechanisms among corporate stakeholders explain why employees do not experience corresponding wage gains. Our heterogeneity analysis further illustrates that the positive impacts of CbCR are particularly pronounced among MNCs with subsidiaries in tax havens, state-owned enterprises, firms operating in regions with robust tax enforcement, and entities with high executive ownership. Additionally, we quantify the distribution of benefits, revealing approximately 49% of anti-avoidance gains accrue to governments, 46% to shareholders, and only 5% to employees.