The Accounting Policy & Practice Report ® provides financial accounting policy makers, advisors, and practitioners with the latest news, expert insights, and guidance on emerging, evolving,...
U.S. accounting rulemakers are studying a request by 16 House members for U.S. multinational companies to publicly disclose “meaningful country-by-country” information on foreign and domestic earnings, assets, numbers of employees and taxes paid year by year.
The Financial Accounting Standards Board, which writes U.S. accounting rules, has proposed audited disclosure requirements that would require financial reporting on income and income tax expense to be broken down between foreign and U.S. operations. The board aims to provide better tax-related information to investors.
FASB “will carefully consider” the recommendations in a letter sent July 18 by the Congressional lawmakers to the board, a board spokeswoman said July 19.
The 16 House members—all Democrats—cited recent estimates of more than $2.6 trillion held by U.S. companies in off-shore accounts.
The legislators spotlighted risks to investors from “offshore profit shifting” and the need, in their view, for “heightened disclosure and transparency requirements.”
“We urge the board to require multinational companies to disclose meaningful country-by-country reporting information in their public financial statements,” the lawmakers wrote in their letter to FASB Chairman Russell Golden.
The House members, including members of the Way and Means and Financial Services committees, described “corporate profit shifting” that spurred efforts “across the globe to combat tax avoidance.”
To meet the “threat” posed by the cross-border transfer of corporate earnings, the lawmakers urged FASB to require U.S.-based multinationals “to disclose their income, assets, number of employees and taxes paid on an annual, country-by-country basis.”
FASB hopes to complete action on its 2016 income taxes disclosure proposal this year, although the work may go into 2018.
FASB has slated its work for later rather than earlier in the remainder of 2017 to get a better fix on how Congress might revamp tax policy.
Legislative changes could affect rulemaking aimed at financial reporting improvements and the usefulness of the disclosures ultimately chosen.
That scenario was discussed in a meeting FASB had last month with corporate financial executives from Fortune 500 companies, including General Electric Co., Boeing Co., Intel Corp., Walt Disney Co., Procter & Gamble Co., Bank of America Corp., and Comcast Corp.
The Internal Revenue Service expects to receive more detailed, country-by-country reporting from large U.S. companies in mid-October. However, that information won’t be available to the investing public.
The U.S. modeled its rules for country-by-country reporting on approaches recommended by the Organization for Economic Cooperation and Development as part of OECD’s Base Erosion and Profit Shifting (BEPS) project.
The U.S. rules require companies with annual revenue of at least $850 million to submit a global blueprint of their operations, broken down by income, employees, facilities, taxes paid and other factors.
Global tax and profit reporting, or country-by-country reporting, is the most widely adopted element of the OECD’s broad rewrite of global tax rules started in 2013.
At FASB, such detailed footnote disclosure requirements would likely face tough sledding at the board’s meeting table.
Rulemakers seek to prescribe viable reporting, and specific, country-by-country sources and times of income earned can be hard to pin down.
Companies, with many subsidiaries, might have their income—earned in one or more countries—routed through a tax authority in a particular country. Taxes paid in one year might relate to income earned over several previous years, with payment reflecting a negotiated settlement, and not income recorded in a specific year.
“That would be a hard requirement,” for various reasons, Fabio Gaertner, an assistant professor at the University of Wisconsin-Madison business school, said July 19, referring to the prescription that the House members asked FASB to weigh.
“Geographic disclosures with respect to real corporate activities are severely lacking,” Gaertner, a specialist in tax accounting, told Bloomberg BNA.
Such disclosure in financial reporting, country-by-country, “is really not there,” he said. “From a tax perspective, it’s even less so.”
To contact the reporter on this story: Steve Burkholder in Norwalk, Conn. at firstname.lastname@example.org
To contact the editor responsible for this story: S. Ali Sartipzadeh at email@example.com
The lawmakers' letter is at http://src.bna.com/qWm.
Copyright © 2017 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)