Tax Transparency Only Works When Companies Show the Numbers

Corporate sustainability reports have become longer, more detailed, and more common. Yet the volume of information a company publishes does not necessarily tell investors whether its behaviour has changed.

A new study examining tax disclosures by major European companies illustrates the distinction.¹ Researchers found that qualitative statements about tax policies and governance were not associated with a significant reduction in corporate tax avoidance. The measurable change appeared only when companies published quantitative country-by-country data showing where they generated revenue, earned profits, and paid taxes.

The finding carries implications beyond taxation. It suggests that corporate transparency becomes most effective when disclosures are standardized, comparable, and sufficiently detailed to expose inconsistencies. For investors, regulators, and the growing compliance technology industry, the quality of disclosed data may matter considerably more than the length of the report containing it.

What Is GRI 207 Tax Reporting?

The Global Reporting Initiative, or GRI, provides one of the world’s most widely used sustainability reporting frameworks. Its GRI 207 standard, introduced in 2019, specifically addresses corporate taxation.

The standard divides tax reporting into four components. The first three cover a company’s approach to taxation, governance and risk controls, and engagement with stakeholders. These are primarily qualitative disclosures. The fourth, GRI 207-4, calls for country-by-country reporting, commonly abbreviated as CbCR.

Country-by-country reporting moves beyond corporate policy statements by requiring multinational companies to break out information across the jurisdictions in which they operate. Depending on the reporting framework, this can include revenue, profit, employee numbers, corporate income taxes accrued, and taxes actually paid.

This geographic separation matters because aggressive tax planning often involves shifting profits away from the countries where business activity occurs and into jurisdictions offering lower tax rates. Consolidated financial statements can obscure those movements. Country-level figures make them easier for regulators, investors, journalists, and civil society organizations to identify.

How European Companies Adopted GRI 207

The researchers examined companies included in the STOXX Europe 600 at the beginning of 2022. They manually collected information from annual reports, sustainability reports, and dedicated tax publications covering fiscal years 2020 through 2022. Financial information from Compustat Global and LSEG was then added to the dataset.

Adoption grew rapidly. The number of sampled companies applying GRI 207 rose from 128 in 2020 to 204 in 2022. However, companies were much more willing to publish qualitative material than detailed geographic tax figures.

By 2022, 201 companies disclosed their general approach to tax, but only 102 published country-by-country information. This gap is important because the less frequently adopted component was also the only one associated with a meaningful change in subsequent tax behaviour.

Sustainability Culture Drove Adoption More Than Tax Behaviour

The researchers first examined why companies voluntarily adopted GRI 207. One possibility was that businesses with relatively conservative tax strategies would be more comfortable with public disclosure. Conversely, aggressive tax planners might avoid transparency because it could attract scrutiny.

The evidence did not support either explanation. A company’s effective tax rate was not significantly associated with its decision to adopt GRI 207. Alternative measurements of tax position, tax risk, and adjusted effective tax rates produced similar results.

Instead, adoption was most closely associated with the company’s existing sustainability reporting practices. Companies producing longer sustainability reports and applying more GRI standards were significantly more likely to add tax disclosures. Larger companies and those with higher market-to-book ratios were also more likely to report.

This suggests that GRI 207 adoption was often an extension of an established reporting system rather than a direct response to tax strategy. Companies with mature sustainability departments already possessed the personnel, processes, and budgets needed to incorporate another reporting standard.

The finding also raises a broader concern for investors. Companies that report extensively may appear more transparent because they cover more topics. However, reporting capacity is not the same as operational improvement. A sophisticated disclosure program can expand without changing the underlying conduct being disclosed.

Why Narrative Tax Disclosures Had Little Effect

The study next examined whether adopting GRI 207 was associated with changes in future effective tax rates. Its models accounted for company characteristics, time effects, and persistent differences between individual firms. The researchers also used matching procedures and alternative statistical designs to test the durability of the results.

General GRI 207 adoption was not consistently associated with reduced tax avoidance. Neither were the three qualitative reporting components when considered without country-by-country data.

There are several reasons narrative disclosures may have limited influence:

• Companies can describe broad principles without revealing operational outcomes.
• Similar language can be reused across companies and reporting periods.
• Stakeholders cannot easily compare general commitments against taxes paid.
• Statements about responsible taxation may leave profit-shifting arrangements invisible.

This is the tax-reporting equivalent of the challenge frequently encountered across ESG reporting. A company can publish polished descriptions of governance, responsibility, and long-term objectives while withholding the granular data needed to evaluate performance. The issue is not necessarily that the narrative is false. It is that narrative alone is difficult to test.

The distinction resembles the wider push toward traceable sustainability information. Technologies such as blockchain are being explored to improve the transparency and traceability of ESG assets, while compliance platforms increasingly focus on connecting reported claims to underlying records. In both cases, the objective is to convert trust into something that can be verified.

Country-By-Country Data Changes the Incentives

Companies adopting GRI 207-4 experienced a moderate increase in effective tax rates, which the researchers interpret as reduced tax avoidance. In the primary models, country-by-country disclosure was associated with an increase of approximately 1.9 to 2.7 percentage points in effective tax rates, depending on the sample and specification.

The effect did not appear immediately. Additional analysis indicated that the clearest adjustment occurred in the first year following adoption. This delay is plausible because companies cannot instantly dismantle tax-planning structures, reorganize subsidiaries, or change where intellectual property and profits are booked.

Quantitative disclosure changes incentives because it creates comparability. Stakeholders can examine whether a company’s profits, workforce, sales, and tax payments appear aligned across jurisdictions. An unusual concentration of profits in a low-tax jurisdiction becomes much harder to conceal behind a general commitment to responsible taxation.

This does not prove that disclosure alone caused every observed change. GRI 207 adoption was voluntary, meaning companies selected themselves into the reporting group. The study used firm fixed effects, matched samples, stacked difference-in-differences models, parallel-trend testing, and an instrumental-variable analysis to reduce this concern. Nevertheless, the authors acknowledge that self-selection cannot be eliminated completely.

Europe Is Turning Voluntary Disclosure Into Infrastructure

The study covers a period in which GRI 207 reporting remained voluntary, but European rules are moving toward mandatory public disclosure. The European Union’s public country-by-country reporting regime requires qualifying multinational enterprises to publish tax and financial information for individual EU jurisdictions and certain non-cooperative jurisdictions.

The European Commission is also developing a digital taxonomy for public country-by-country reports. Structured digital reporting could make company data easier to search, compare, and analyze automatically.

For investors, this evolution could turn taxation into a more visible governance signal. A company’s geographic tax profile may reveal regulatory exposure, dependence on favourable tax arrangements, or a mismatch between reported economic activity and taxable profits. Public data will not eliminate tax planning, but it may increase the reputational and political cost of particularly aggressive strategies.

It will also expand demand for regulatory technology. Collecting accurate information from dozens of subsidiaries, reconciling it with financial systems, applying multiple reporting frameworks, and maintaining an audit trail is not a simple publishing exercise. It is a data infrastructure problem. This connects the study to the broader growth of compliance-as-a-service platforms designed to help businesses manage increasingly complex obligations.

Investing In Connected Corporate Reporting

Workiva offers investors relevant exposure to the transition from narrative reporting toward connected, audit-ready corporate data. Its cloud platform brings together financial reporting, sustainability disclosures, risk management, audit processes, and regulatory compliance.

The connection is particularly relevant because tax transparency crosses departmental boundaries. Country-by-country reporting can require information from tax, finance, legal, sustainability, and regional operating teams. A disconnected process built around emailed spreadsheets increases the risk of inconsistent figures, weak controls, and difficult audits.

Workiva’s sustainability reporting platform is designed to connect data with supporting evidence, preserve an audit history, and align disclosures with multiple standards. The investment thesis is therefore not dependent on GRI 207 alone. It rests on the wider movement toward structured corporate reporting in which companies must substantiate financial and sustainability claims using governed data.

Workiva still faces the risks typical of enterprise software companies, including competition, valuation sensitivity, implementation costs, and changing regulatory schedules. However, every additional reporting framework increases the organizational complexity that its platform is designed to manage. Requirements that move from narrative statements to auditable quantitative information may create particularly durable demand.

Transparency Requires Comparable Evidence

The study does not suggest that qualitative disclosure is worthless. Descriptions of governance, tax strategy, and stakeholder engagement can explain who holds responsibility and how decisions are made. The problem arises when narrative reporting is treated as a substitute for measurable outcomes.

GRI 207-4 appears more consequential because it exposes the relationship between corporate activity and tax payments. That makes discrepancies visible and gives stakeholders something concrete to challenge. It also illustrates a principle that extends across sustainability reporting: disclosure is most likely to influence behaviour when companies know outsiders can compare their claims with standardized evidence.

For investors, the takeaway is straightforward. More reporting does not automatically mean more accountability. The most valuable disclosure is not necessarily the longest or most polished. It is the disclosure that makes corporate behaviour easier to measure, compare, and question.

References:

¹ Boer, A., Overesch, M., & Werthebach, F. (2026). Inclusion of taxes in sustainability reports – Firms’ reporting behavior and effects on tax avoidance. Journal of Accounting and Public Policy, 60, 107465. https://doi.org/10.1016/j.jaccpubpol.2026.107465