Double taxation treaties and disclosure of offshore activities: evidence of tax avoidance incentive

In this study, we examine the association between double taxation treaties (DTTs) and United States multinational enterprises’ (MNEs) disclosure of offshore activities. Using a dataset consisting of 890,746 firm-subsidiary-year observations between 1999 and 2017, we find that the establishment of DTTs reduces a firm’s voluntary disclosure of their offshore activity. Additional tests suggest that tax avoidance incentives with DTTs is one factor causing the reduction in disclosure of a firm’s offshore activity. We find that the reduction of the disclosure of offshore activity is concentrated in firms with operations in high statutory tax rate countries, lower income mobility, and a higher likelihood of using a tax shelter. Our findings have implications for policymakers and tax authorities around the world.