Tax-Disclosure Plan Would Reveal Reinvested Foreign Earnings

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By Denise Lugo

July 26 — U.S. multinationals and other firms would need to disclose cash, cash equivalents and marketable securities held by foreign subsidiaries under a Financial Accounting Standards Board proposal to improve and add to requirements for income tax disclosures.

FASB intends for its July 26 proposal, in combination with other disclosures, to bring greater transparency in the area of indefinitely reinvested foreign earnings.

Currently, a company is required to provide the deferred tax liability for indefinitely reinvested foreign earnings. Indefinitely reinvested foreign earnings considered to be permanently reinvested must be disclosed under today's U.S. tax accounting rules.

If a company says it is “indefinitely reinvesting” its earnings, it doesn't have to recognize a liability. When the company changes that assertion, however, the proposed disclosures would require the company to explain the circumstances that caused a change in assertion about the indefinite reinvestment of undistributed foreign earnings and the amount of earnings that correspond to the change.

Foreign-Holdings Transparency

The rules are among a broad package of changes to disclosure requirements for income taxes under ASC 740 issued by FASB. A number of new disclosures were added that are expected to bring transparency about a company's foreign versus domestic information, as well as future impacts to the company.

Other proposed changes include:

  •  description of an enacted change in tax law that would have an effect on the company in a future period;
  •  income tax expense or benefit from continuing operations broken out between domestic and foreign; and
  •  income taxes paid broken out between domestic and foreign and the amount of income taxes paid to a particular country that is significant relative to total income taxes paid.

Part of Disclosure Framework

FASB said the proposed disclosures will provide financial statement users with better information about income taxes, thereby enabling them to make better assessments of firms' economic health.

The work is part of the board's broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements.

The focus of the income tax disclosures is to both test the concepts for disclosures and improve existing income tax disclosures.

FASB is seeking comments by Sept. 30 on the package. The proposal is “Income Taxes (Topic 740), Disclosure Framework—Changes to the Disclosure Requirements for Income Taxes.”

To contact the reporter on this story: Denise Lugo in Norwalk, Conn., dlugo@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

For More Information

For a copy of the full package of proposed disclosure changes go to http://src.bna.com/g88.

For a general discussion of income tax accounting, see 5000-5th, Accounting for Income Taxes: FASB ASC 740 .

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