House Democrats ask FASB to require more detailed disclosures about offshore taxes

16 Democrats in the House of Representatives called on the FASB to write a standard that would require U.S. multinationals to disclose more information about foreign earnings and taxes.

The lawmakers’ request to the FASB comes as reform and civic groups have been urging Congress and regulators to crack down on tactics companies use to hide profits in offshore tax havens.

“In order to address the threat posed by offshore profit shifting to investors and the public, we urge the board to require multinational corporations to disclose their income, assets, number of employees, and taxes paid on an annual, country-by-country basis,” the lawmakers wrote in a July 18, 2017, letter to FASB Chairman Russell Golden. “These standards will implement critical safeguards and mitigate risk for investors and provide policymakers and the public with important data relevant to our national well-being.”

Rep. Mark Pocan of Wisconsin and Lloyd Doggett of Texas led the effort to write the letter. Also signing the letter are Reps. Sandy Levin of Michigan, Earl Blumenauer of Oregon, Judy Chu of California, Michael Capuano of Massachusetts, David Cicilline of Rhode Island, John Conyers of Michigan, Peter DeFazio of Oregon, Keith Ellison of Minnesota, Barbara Lee of California, Ted Lieu of California, Stephen Lynch of Massachusetts, Gwen Moore of Wisconsin, Jan Schakowsky of Illinois and Raul Grijalva of Arizona.

The Financial Accountability and Corporate Transparency (FACT) Coalition, a group of more than 100 organizations, has been lobbying for increased transparency in tax reporting because offshore profits have significantly grown in the past several years. U.S. companies have been using so-called tax inversions to avoid paying the 35 percent domestic tax rate by parking some of the money in locations overseas where the tax rates are much lower.

The group said U.S. companies hold about $2.5 trillion in offshore accounts, but investors know little about companies’ use of foreign tax havens.

“Shareholders face heightened financial risks when they lack access to complete information about a company’s tax strategy, valuation, and management approach,” the lawmakers wrote. “A number of large U.S. companies have faced significant questions in recent years over the potential value of their tax liabilities, uncertainty which potentially threatens their investors.”

The letter said concerns about shifting profits have also led to global initiatives to fight tax avoidance, such as the Multilateral Convention from the Organization for Economic Cooperation and Development (OECD). The European Union is proposing that multinational companies provide more information about foreign income taxes. Among other things, companies are being asked to disclose whether they are benefiting from a preferential tax treatment.

“While these policies target many broad issues pertaining to tax avoidance, a notable point of consistency is the need for heightened disclosure and transparency requirements,” the lawmakers wrote. “The board’s Disclosure Framework project offers a valuable opportunity to make critical progress on these shared objectives.”

The FASB in July 2016 issued a proposal to require more detailed information about foreign earnings. Proposed Accounting Standards Update, (ASU) No. 2016-270, Income Taxes (Topic 740): Disclosure Framework — Changes to the Disclosure Requirements for Income Taxes, would require companies to report separate foreign and domestic taxes, describe enacted changes in tax law, and explain circumstances that cause a change in the assertion about the indefinite reinvestment of undistributed foreign earnings.

“These issues are particularly relevant to FASB’s objectives because the limited availability of public data about overseas holdings poses a threat to investors, policy makers, and the general public,” the lawmakers wrote. Because companies already use the information internally and report much of it to the IRS, the lawmakers added that the compliance burdens for the extra public disclosure would not be much.

“We appreciate the input and interest from members of Congress on this important issue,” a FASB spokesperson said in an emailed statement. “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.”

In the meantime, the FACT Coalition and other investor advocates have asked the SEC to write disclosure rules for offshore taxes in response to the commission’s broader effort to overhaul disclosure requirements. The SEC’s Disclosure Effectiveness project aims to cut duplicative and redundant information while adding information that investors may find useful.

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