U.S. Lawmakers Demand More Global Tax, Earnings Disclosures

By Steve Burkholder

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.

‘Threat’ From ‘Offshore Profit Shifting’

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.

Legislation Could Affect Accounting

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.

IRS Info: Not Public

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.

Country Reporting Difficult for FASB

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 sburkholder@bna.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bna.com

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