Groups urge FASB to prioritize public country-by-country tax reporting

By Doug Connolly, MNE Tax

The US Financial Accounting Standards Board should adopt in its standard-setting agenda a requirement for companies to report information in the notes to their financial statements on the disaggregation of country-by-country income tax, according to a September 22 letter signed by 63 organizations that manage a total of nearly USD 3 trillion in assets.

The letter contends that this information is critical for investors to assess companies’ risks and value. In this respect, the letter highlights Coca-Cola’s recent multi-billion-dollar tax assessment in a transfer pricing dispute relating to the company’s pricing of intercompany royalties. The US Tax Court generally upheld the IRS’s assessment in its 2020 decision, although Coca-Cola in June asked the court to reconsider its decision.

“Country-by-country tax financial reporting,” the letter states in reference to the Coca-Cola case, “could have alerted investors to an overreliance on tax planning and other accounting measures that increased risk.”

The letter adds that tax authorities are already receiving country-by-country tax information under an OECD agreement. It adds that current tax reforms underway both within the US and globally will only further enhance the importance of such information, yet investors do not currently have access to it.

A similar push for such reporting is underway in the EU. European Council and European Parliament negotiating teams reached an agreement in June on a proposed directive requiring public disclosure of country-by-country tax information by certain large multinational groups operating in more than one EU country. Nonetheless, the letter suggests that FASB “with its technical expertise and investor focus” should take the lead on the issue.

In addition to the letter signed by 63 asset managers, pension funds, and other investor organizations, a separate letter from the FACT Coalition submitted the same day reiterates and elaborates the case for public country-by-country tax information reporting.

“By requiring disaggregated country-by-country corporate tax disclosures for public business entities [in the manner described],” the FACT Coalition states, “FASB will help identify countries that are facilitating corporate tax dodging and thereby expose tax risks currently hidden from investors.”