Investors and Analysts Call for More Disclosures around Offshore Tax Practices as Shifting Tax Policies and Increased Enforcement Actions Impact Shareholder Value
WASHINGTON, D.C. – Investors are at an increasing risk from the lack of information disclosed by companies about their tax practices, according to a new analysis published today by the Financial Accountability and Corporate Transparency (FACT) Coalition.
The FACT Coalition is a non-partisan alliance of more than 100 state, national, and international organizations working toward a fair tax system that addresses the challenges of a global economy and promoting policies to combat the harmful impacts of corrupt financial practices.
Titled “Muddled Markets: Investors Increasingly at Risk from Lack of Disclosures about Corporate Tax Practices,” the report finds that multinational companies have become increasingly reliant on offshore tax avoidance practices to boost short-term earnings in recent years, yet disclosure requirements haven’t kept pace with this changing world. As governments around the globe struggle with growing budget deficits, tax authorities are increasingly cracking down on aggressive tax avoidance practices, which can have a significant impact on shareholder value. At the same time, shifting national policies around international taxation — including, but not limited to, the recent tax overhaul in the United States — create complexity and uncertainties with respect to returns for investors.
“Some multinationals rely on aggressive tax strategies for a large share of their profits. If countries crack down, that changes their financial outlook. Investors need to know the real deal and, right now, they are left in the dark,” said Gary Kalman, the executive director of the FACT Coalition. “The risks are real. It’s billions of dollars at stake. It’s unsurprising that a growing number of investors and analysts are calling for this information.”
“It is only with a full appreciation of basic facts about a corporation’s operations and earnings at a country-by-country level that an investor can meaningfully assess that corporation’s international tax practices, liabilities, and risks,” added Mr. Kalman.
Public Country-by-Country Reporting
In 2016, the U.S. Department of the Treasury finalized a rule requiring large companies to disclose privately to the Internal Revenue Service their profits, revenues, and tax payments on a country-by-country basis. Tax authorities in many other countries have implemented similar measures — known as country-by-country reporting — after the G-20 group of leading economies endorsed the practice as the international norm. The European Union already requires this type of information be publicly disclosed by larger banks and extractive industry companies, and the EU is in the process of expanding those requirements to all large companies.
Mr. Kalman noted: “Right now, today, many tax authorities have this information. The top management of companies has this information. The only ones without access to it are the ones who are putting their money at risk. How does that make any sense?”
“Moreover, since many companies are already required to file this information with the IRS, making it public wouldn’t pose much of burden,” added Mr. Kalman.
Policymakers are Considering Increasing Disclosures in the U.S.
For several years, the Securities and Exchange Commission (SEC) has been considering increases to disclosure requirements around international taxation. The Financial Accounting Standards Board (FASB) is undertaking its own process weighing whether to expand corporate disclosure requirements in the accounting standards.
Several prominent investors, accountants, financial analysts, and academics — including investors with more than $70 trillion under management, the Certified Financial Analysts Association, and the Investor Advisory Committees at both the SEC and FASB — have spoken out in favor of increased transparency.
Specific Policy Recommendations
To better inform investors, the report calls on the U.S. Securities and Exchange Commission and the Financial Accounting Standards Board to revise their international tax disclosure frameworks to specifically require multinational corporations to disclose, on an annual, country-by-country basis:
- profit or loss before taxes;
- income tax accrued for the current year;
- revenues from unrelated parties, related parties, and in total;
- income tax paid (on a cash basis);
- effective tax rate;
- stated capital;
- accumulated earnings;
- number of employees; and
- tangible assets other than cash or cash equivalents.
In addition to public country-by-country reporting, the report recommends a number of additional tax-related disclosures (see pages 23–28), including disclosure of all international subsidiaries, which would be useful to shareholders.
Notes to Editors:
- Click here to read an online version of this press release on our website.
- Click here to read more about the report.
- Click here to download a PDF of the report.
Deputy Director, The FACT Coalition
+1 202 810-1334