Tax News & Views International Weekly: Tax Reporting Transparency, at Home and Abroad

As we noted last week, Australia has recently taken a major step forward—critics would say, a step too far—towards full tax transparency among multinational entities.

Back here in the U.S., Congress may be poised to take a step in the opposite direction.

As Washington girds towards a fight over federal spending, Republicans have included a funding restriction which would nix a recent transparency initiative at the Financial Accounting Standards Board, the standards-setter for financial reporting rules in the U.S.

FASB is technically a private organization, but because its rules are used by the Securities and Exchange Commission, they have the weight that a government body's might have.

In a controversial move, FASB issued a rule in late 2023, mandating that public companies report more about their domestic and foreign income tax payments–including, in some cases, payments in individual jurisdictions. While not identical to Australia's rules, or the country-by-country reporting standards set by the Organization for Economic Cooperation and Development, the FASB mandate covers a lot of the same ground. The new standard, which takes effect for tax years beginning after December 2024, could highlight situations where companies pay less in certain jurisdictions.

The organization maintained that with this rule, it was simply responding to investors who wanted to know more about the tax positions of the companies they were investing in--not to assist government authorities in tax collection. But business organizations and other opponents of the rule claimed that this rule went beyond FASB's purview, and was more about politics than clarifying information reporting.

Republicans have largely joined business groups in opposition to the bill, and they’ve included in the financial services appropriations bill a provision to bar approval of FASB’s budget by the S.E.C., unless the rule is rescinded. That has a slim chance of passing without Democratic support, but the restriction could become a point of bargaining as the two parties face off with the threat of a government shutdown looming.

This could be a major development as the world debates the right level of reporting for multinational entities. But there is another concern as well—the independence of the institutions which set financial accounting rules. FASB, like other accounting bodies, is supposed to be an independent board that stays laser-focused on developing the rules that keep investors informed. But the disconnect from politics has never been total. This is especially apparent in the 2022 enactment of the corporate alternative minimum tax, which is based on profit as reported in financial statements. The authors of that rule said it would ensure that companies don’t manipulate the federal tax code to pay little or nothing in taxes. But critics said it could tarnish the appearance of generally accepted accounting principles as independent from the pressures exerted on the tax system.

The restriction on country-by-country reporting is yet another example of political pressure on FASB. (And some Democratic representatives have been pushing the board to adopt this rule, as well.) However it plays out, the financial accounting world will be watching.

Noteworthy Items This Week

EU Questions Effectiveness of UN Tax Process Without US – Saim Saeed, Bloomberg Tax ($):

The United Nations’ effort to develop an international tax convention “would be a bit challenging” without the US’s participation, according to a senior European Commission official.

If the body’s discussions surrounding digital taxes progress, they might overlap with stalled discussions at the Organization for Economic Cooperation and Development on taxing rights, which likely will have a significant impact on tech companies, EU Commission Director for Direct Tax Benjamin Angel said Tuesday.

State Aid as a Precursor to Pillar 2 – Mindy Herzfeld, Tax Notes ($):

Pillar 2 At 4: High Compliance Costs, Low Tax Liabilities – Natalie Olivo, Law360 Tax Authority ($):

Pat Brown, a partner and co-leader of PwC's Washington national tax services practice, has consistently heard from U.S. and foreign multinationals that the amount of money they are spending to ramp up to comply with Pillar Two is significantly greater than the increased tax burden. There will be a spike in initial compliance costs — for some companies, millions of dollars — but that number is not going down to zero going forward, he said.

"There's going to be an ongoing compliance burden cost associated with Pillar Two, and the incremental tax that they would face from Pillar Two is really not that significant," Brown said.

Senate Democrats Question ExxonMobil on Potential Use of FTCs – Cady Stanton, Tax Notes ($):

“We are concerned about the possibility that American taxpayers may be subsidizing ExxonMobil’s foreign oil production, which they do in partnership with a Chinese state-owned company,” the senators wrote. “We would like to better understand whether U.S. tax dollars are subsidizing your partnership with China to drill for oil overseas.”

The lawmakers noted that ExxonMobil is considered a “dual capacity” taxpayer because of its status as a multinational company that pays income tax in a foreign country and utilizes a specific economic benefit from that country — in this case, the right to extract oil and gas.

France, Netherlands Push to Curb Wealthy Moving for Tax Purposes – Saim Saeed, Bloomberg Tax ($):

In the paper, seen by Bloomberg, the countries propose adding harmful tax planning done by individuals to the list of practices that EU countries currently tackle jointly.

“We observe a growing trend where individuals, particularly those with significant mobile assets, are able to shape their tax residence in a way that allows them to benefit from favorable tax regimes offered by other jurisdictions,” the paper read.

Public Domain Superhero of the Week

Every week, a new character from the Golden Age of Comics, who’s fallen out of use.

This week’s entry: Captain Triumph

Debut Year: 1943

Debut Publication: Crack Comics #27

Origin Story: After his twin brother died as a pilot during World War II, the Fates (from Greek mythology) endowed Capt. Triumph with special powers to battle evil.

Superpowers: Aside from superpowers such as flight, super-strength and invisibility, by touching his birthmark Triumph would be joined by his dead brother's spirit.

Eide Bailly's International Tax Team and our affiliates at HLB, The Global Advisory and Accounting Network, stand ready to assist with your worldwide tax needs.

Tax News & Views International Weekly: Tax Reporting Transparency, at Home and Abroad

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Alex Parker