Key Takeaways
- Several new disclosure regimes are imposing a new era of tax transparency for multinationals..
- Aside from governments, the U.S. accounting standards body is also requiring new country-by-country reporting.
- Many critics, as well as the OECD’s top tax official, have said the new information being made public could lead to more confusion and misinterpretation.
- Coca-Cola case the "Super-Bowl" of transfer pricing, Eide Bailly partner says.
- U.S. official wants to avoid AI in digital tax talks.
Multinational corporations have entered into a new era of global tax transparency, with unprecedented scrutiny of international tax structures.
Many business associations have said the information now being made publicly available could be misleading without context. Manal Corwin, the Organization for Economic Cooperation and Development’s director for tax policy and administration, added her voice to those criticisms, cautioning against drawing conclusions from incomplete data.
“It’s concealing significant limitations and underlying issues in different flows, double counting, timing issues, [and] post-period adjustments that can all materially affect the picture,” Corwin said, speaking at an international tax conference in Washington, D.C., according to news reports. “The public doesn’t have the tools or the context to be able to make those interpretations that even tax administrations can’t do just by looking at the reports.”
The OECD has its own requirements for country-by-country reporting, which were part of its 2015 project on Base Erosion and Profit Shifting. Those rules require companies to report various factors, by jurisdiction, to tax administrations for help in focusing enforcement efforts. But the OECD guidelines urge countries to treat those reports as confidential taxpayer information.
Australia, however, has enacted a version of public country-by-country reporting, that has provoked some backlash amongst companies that will be affected. The first deadline for that system is June 30. The European Union also enacted a more limited version of country-by-country reporting, with the first reports due in 2026.
The Financial Accounting Standards Board, which sets rules for the reporting of financial information in public filings, also now requires that companies report some tax-related data on a jurisdictional basis. FASB rules apply to the Securities and Exchange Commission, and 2026 is the first year that these requirements are mandatory for publicly traded U.S. firms. Already, news outlets and non-profit advocacy groups have used that information in analyses of international tax trends.
In theory, factors such as income reported in a given jurisdiction, the amount of taxes paid there, and how much workforce or physical assets are present could give tax authorities and the public an idea of where tax avoidance may be happening. But it could also indicate other dynamics–such as a very valuable workforce. Observers have also raised concerns about double-counting of income and how the reporting could be thrown off by timing differences.
Despite these criticisms, it’s hard to imagine the transparency trend reversing. Taxpayers are likely going to have to learn how to cope with this information being out there, however it’s interpreted.
Noteworthy Items This Week
“We’re talking about truly massive dollars, almost unprecedented in the transfer pricing context,” Chad Martin, a principal at Eide Bailly, said. The case is “the Super Bowl of transfer pricing controversy.”
Coca-Cola has already paid the IRS $6 billion, which will be refunded if it ultimately wins the case. But the company has said it may be on the hook for up to $14 billion more if it loses.
AI Has No Place in Global Digital Tax Talks, US Official Says – Lauren Vella, Bloomberg Tax ($):
“I think it will be the straw that broke the camel’s back—we’ll never get done scoping the problem if we’re focusing on something that we’re not quite sure where it’s going, where it’s headed, and how it’s impacting us,” she said.
“So I get, we should ask the question, ‘Does AI belong in this discussion?’ I think that at this point it does not,” she said, especially if countries are trying to solve existing problems that have been around for years.
Bolt Case Shows Divide Between New Tech, Old VAT Rules – Josh White, Law360 Tax Authority ($):
"VAT legislation has often struggled to keep pace, creating areas of uncertainty that businesses have understandably sought to rely upon," Deeks said. "The key lesson is that businesses should not build long-term commercial strategies around a VAT position simply because it appears to work in practice or has initially been successful in the courts.".
OECD Aware of Issues With Pillar 2 and Investment Treaties – Sarah Paez, Tax Notes ($):
Tax credit buyers prefer to shop for projects under a previous tax credit regime because they’re not subject to the foreign influence restrictions. Developers had to start construction before the end of 2024 to qualify for the legacy clean energy tax credits.
“We’ve seen a premium for the legacy credits over the tech-neutral credits,” said David Burton, a Norton Rose Fulbright partner focused on tax deals in the energy industry.
These aren’t abstract numbers. They’re profits stripped from US companies, costs passed on to American consumers and small businesses through higher prices, and tax revenue lost from the US Treasury. DSTs violate every constitutional principle of taxation: They tax what foreign governments don’t protect, impose burdens without representation, apply only to a narrow class of (mostly US) firms, and assert taxing rights based on mere user clicks rather than production or presence.
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: Atomic Rabbit
Debut Year: 1941
Debut Publication: Pocket Comics #1
Origin Story: A Hollywood starlet and stuntwoman, she became bored with the celebrity life and decided to fight Axis spies during WWII.
Superpowers: No superpowers, but her training in Hollywood stunts left her well-equipped to fight evildoers.
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.
