Cross-border regulatory cooperation and corporate tax avoidance

We examine whether improved cross-border regulatory cooperation and information exchange affect corporate tax avoidance. We find that the improvement in the regulators’ capacity to access to information in foreign countries through their entrance into the Multilateral Memorandum of Understanding (MMoU) effectively reduces corporate tax avoidance. Moreover, the effect of the MMoU on corporate tax avoidance is stronger for firms that are less income mobile and have no significant subsidiaries in tax havens. Collectively, these findings support the conjecture that the strengthened cross-border regulatory cooperation and information exchange provided by the MMoU creates a positive externality in reducing corporate tax avoidance behavior.