Policy Recommendations

At a minimum, to effectively identify and appreciate the impacts of international tax-related information on a company’s performance and valuation, investors need, on a 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 country-by-country reporting, investors would have a much greater ability to understand a company’s international tax strategy and risk profile if U.S. regulators further specified in modest rules changes or, if appropriate, guidance that public companies should:

• divide their domestic U.S. income tax current, deferred, and cash paid into Federal and State;
• explain any effective tax rate that is significantly lower than the statutory rate in the countries in which they do business;
• use the company’s weighted average statutory rate based on geographic revenue mix instead of home country statutory rate in the tax rate reconciliation schedule (which would help explain the likely effective tax rate, especially as worldwide rules change);
• explain any large or increasing Unrecognized Tax Benefit (UTB) balance and delineate the cost of specific significant benefits in the UTB reconciliation;
• disclose for all non-de minimis intracompany debt transactions, the countries where the debt is held, the amount of the debt, and the average interest rate “paid” by the relevant subsidiary on that debt;
• disclose and explain any material tax incentives or benefits provided by a foreign jurisdiction, including the estimated tax savings, any conditions attached to the incentive or benefit, and the likelihood that the incentive or benefit may be lost; and
• disclose of any legal proceedings by foreign governments related to taxes paid to any such government, regardless of whether such matter is material to the financial position of the corporation.

Collectively, these enhanced disclosures are essential for investors to effectively value and assess the risks related to the public companies in which they have invested.

More information on the recommendations can be found in Section VI on page 23 of the full report.