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USA standards setter urged by politicians and securities officials to introduce country-by-country tax reporting

Members of the USA House of Representatives and members of the SEC's Investor Advisory Committee (IAC) have separately sent a letter to the Financial Accounting Standards Board (FASB), urging the USA standards setter to require multinationals to disclose their financial information including taxes paid on a country-by-country (CbCR) basis.

While the letter from the members of Congress advocated for public disclosure of such information, members of the IAC were more conscious and suggested that disclosure should be required only if relevant and material.

The letters follow on a FASB exposure draft which considered expanding public disclosures around income taxes. The exposure draft was issue for public comment in July 2016 and the comment period officially closed on 30 September 2016. However a spokesperson for FASB told this magazine that the USA standards setter considered comment letters no matter when they’re received.

Sixteen members of the House of Representatives signed a letter saying that they shared FASB’s goal of improving the effectiveness and utility of financial statement disclosures.

“In order to fully realise these goals, we urge the Board to require multinational corporations meaningful country-by-country reporting information in their public financial statements,” the letter went on.

The members of the USA Congress argued that this information was already used by companies internally and most of it was already reported to the tax authority, mitigating the argument that making this information public would add compliance burdens.

This point was also made in the IAC members’ letter, signed by John Coates, chair of the Investor as Owner Subcommittee of the IAC. The views expressed in that letter were those of a “super majority” of the subcommittee and do not represent the views of the full IAC.

Picking on FASB exposure draft which suggested disclosure be limited to countries where significant tax is being paid, the Subcommittee letter stated that “such limitation may lead even if inadvertently to a misleading picture if the reason no significant tax is being paid is not that revenues, earnings, or tax rates are low, but because of tax strategies”.

The Subcommittee letter put emphasises on disclosing not only figures but the context. “We note that basic quantitative information about taxes paid to foreign countries by issuers, and the relevant accounting information to put that information into context (e.g., revenues, profits before taxes), would also be a basic predicate for understanding the risk disclosures that we have recommended the SEC to consider,” the letter read.

A FASB spokesperson told this magazine: “We appreciate the input and interest from members of Congress on this important issue. Last year, the FASB issued proposed improvements to tax disclosures as part of a broader disclosure framework project.  We received approximately 50 comment letters in response to that proposal, and conducted extensive outreach including a roundtable earlier this year.  We will carefully consider the recommendations in the Congressional letter as we redeliberate all the input we received prior to determining next steps.”

Income tax disclosures is one component of FASB’s disclosure framework project, this magazine understands that FASB is expected to begin making or finalising decisions on the project during the latter part of this year.

 

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