The nation’s main accounting rulemaker has run into opposition from the U.S. Chamber of Commerce about disclosure rules it plans to propose by the end of March on income taxes companies pay in the U.S. and overseas.
The Chamber’s concern is that the FASB proposal would require companies to disclose too much information, which in turn could be used by politically tainted non-investor activists “to vilify firms and deter investments,” group executives said in a Feb. 7, 2023, letter addressed to FASB Chair Richard Jones.
“The Chamber is concerned that recent demands for increased income tax disclosures derive from a politically driven narrative—namely, that corporations do not “pay their fair share”—and are not based on an investor mandate,” wrote Tom Quaadman, executive vice president, Center for Capital Markets Competitiveness and Watson McLeish, senior vice president, Tax Policy. “Disseminating information that is more governmental in purpose—and that is already being reported to the government—is the province of federal regulators and Congress, not FASB.”
Their ask is that the FASB disclose those with whom it has consulted on the project—targeted income tax disclosures—plus meet with the business community to discuss the proposal after issuance.
The Chamber, founded in 1912, is “the world’s largest business federation, representing nearly three million companies, 2,800 state and local chambers, 830 business associations and over 100 American Chambers of Commerce abroad.”
If finalized, the FASB’s proposal will become U.S. GAAP by year-end. The public will get 75 days to submit comment.
Ultimately, the guidance aims to bring transparency around the impacts of taxes on profits, including risks and opportunities both here and overseas. Moreover, the disclosures would provide investors with better information for making investment decisions, estimating tax rate risks, determining tax rate sustainability, forecasting future cash flows, and asking appropriate and efficient questions to management.
So far, the board has taken a welcoming posture about the letter, not saying too much.
“We appreciate the feedback and look forward to engaging with the U.S. Chamber of Commerce and other stakeholders as we consider all input on our upcoming proposal,” a FASB spokesperson said on Feb. 14.
Who Asked for Rules and Why?
The letter comes about three years after the board – in 2019 under a prior chair – was pressed by Senate democrats to tackle disclosures about cash taxes companies pay both in the U.S. and overseas, citing continued evidence of “widespread, unsustainable corporate tax practices” by multinational corporations. (See Senate Democrats Push FASB for Expanded Income Tax Disclosure Rules in the Oct. 3, 2019, edition of Accounting & Compliance Alert.)
More recently last year, during its agenda consultation outreach, the FASB heard from investors and analysts that it should prioritize projects that would require companies to provide more disaggregated income statement information, including around income taxes. Staff outreach determined that investors and analysts view cash taxes paid as a blind spot that sheds no light about how a company’s worldwide operations affect its rate, as well as the legislative risks and opportunities.
Investors’ concerns stem from current accounting provisions which allow income taxes paid to be provided as an aggregated number based on the current disclosure requirements of Topic 230, Statement of Cash Flows, according to FASB discussions. Thus, financial statement users asked the board to require information of cash taxes paid at a more granular level such as by jurisdiction or geographic segment or by types of taxes paid such as the base erosion and anti-abuse tax (BEAT) or the global intangible low-taxed income (GILTI). Furthermore, users suggested that the board require that companies break out the figures for income taxes they pay between current and prior tax seasons.
Highlights of Coming Proposal
The board will propose that companies should break down the income taxes they paid to federal, state and foreign authorities in a reporting period, detailing where they paid more than 5 percent of total taxes and the dollar amount.
Companies would provide the disclosures by federal, state and foreign for both annual and interim reporting and annually by individual jurisdiction. The jurisdictional disclosures would fall under Topic 740, Income Taxes, and would include rate reconciliation information by specific categories.
The rate reconciliation disclosures will be very robust.
This article originally appeared in the Feb. 15, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.
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