Country-by-Country reporting, corporate tax avoidance, and supply chain structure: A bunching analysis based on income manipulation by Chinese multinational corporations

Due to the endogeneity issue arising from the voluntary manipulation of MNCs own operating income, we employed bunching analysis to investigate the impact of Country-by-Country reporting(CbCR) on tax avoidance behavior of Chinese multinational corporations. The study found that multinational corporations' operating income exhibited bunching at 5.5 billion RMB. Within the bunching interval, the distribution of actual-value enterprises was 111 % higher than that of counterfactual enterprises, with an elasticity of 0.0359. Tax avoidance by multinational corporations significantly decreased within the manipulation interval, leading to a noticeable increase in taxable amounts. A series of robustness tests confirmed the validity of the above conclusions. This suggests that CbCR could serve as an important policy tool to combat tax base erosion and profit shifting. Furthermore, CbCR led Chinese multinational corporations to increase their investment scale while reducing profit shifting, but also resulted in a decrease in employment and a more concentrated supply chain structure. Careful evaluation is needed regarding the future expansion of the scope and target users of CbCR.