Trump administration wages war on corporate tax transparency whilst many US MNCs quietly embrace public country-by-country reporting
The Trump administration is threatening to cut off funding to the FASB, the US’s accounting standard setter, unless it abandons a modest push for extra corporate tax transparency. Meanwhile, many US multinationals are quietly getting on with producing much more ambitious country-by-country reports, as mandated by the EU.
Back in December 2023, after nearly a decade of to and fro, the US Financial Accounting Standards Board (FASB) announced that large US multinationals would henceforth need to provide more of a breakdown in their financial reports on where they were generating income, making profit and paying corporate income tax. This would happen via a revision to the ‘Income Taxes disclosure standard Topic 740’.
Nothing too radical was being demanded: jurisdiction by jurisdiction breakdown would only be needed on foreign taxes for where there was an impact of 5 percent or more. The FASB was not proposing full blown tax transparency and public country-by-country reporting, as displayed by Fair Tax Mark certified businesses. Neither did the FASB’s proposals match the legislative requirements coming out of the EU and Australia. But the advances were certainly a solid step forward. Moreover, the change was in large part driven by investors, lenders, creditors and other allocators of capital, who said that they needed such information in order to properly assess the risks being undertaken by the businesses they owned and invested in.
FASB: Income Taxes disclosure standard Topic 740 (December 2023)
Business should disclose income taxes paid disaggregated by individual jurisdiction on the basis of a quantitative threshold of 5 percent of total income taxes paid. Also, with reference to the rate reconciliation, they should separately disclose reconciling items by nature and by jurisdiction, on the basis of a quantitative threshold of 5 percent, within the foreign tax effect category. Depending on the size and type of entity, the new standard will be effective for annual periods beginning after 15 December 2024.
Business was given plenty of time to adapt, with the new standard expected to impact financial reporting in 2026. So far, so good.
But there has always been a significant portion of the US multinational business community that is wedded to financial secrecy – be that of ownership or financial performance. It looks like they have persuaded the Trump administration to undertake an all out attack on these new (moderate) reporting requitements. This month, FASB budgetary approval, via the Securities and Exchange Commission (SEC), has been made conditional on FASB abandoning the new corporate income tax reporting standards.
The House of Representative’s appropriations bill includes the following clause:
“SEC. 529. None of the funds made available by this Act may be used to review or approve the budget for the Financial Accounting Standards Board (FASB) as described in 15 U.S.C. 7219, until the FASB withdraws the Accounting Standards Update on Income Tax Disclosures issued in December 2023 (No. 2023-09).”
What makes this development particularly perverse is that:
a) the majority of US businesses that need to enhance their reporting are geared up for change next year;
b) many US multinationals are captured by the EU’s much more demanding public country-by-country reporting directive, and have quietly got on with the task of enhancing their tax transparency.
Detailed below is a list of all those US multinationals that have embraced the letter and spirit of the EU pCbCR Directive in recent months. Each of which is to be commended. The list includes well known global brands such as Ford, Honeywell, Manpower, Molson Coors and Phillip Morris.
By no means are we suggesting that the overwhelming majorly of US multinationals have embraced corporate tax transparency. Our recent analysis revealed that US-domiciled multinationals are not showing the same level of enthusiasm compared to multinationals in Japan and the UK. But the fact that a substantial minority (44%) of US multinationals are already embracing both the letter and spirit of the EU pCbCR Directive in its first year is a cause for optimism. We expect many more to comply in the coming weeks and months.
Paul Monaghan, Chief Executive, Fair Tax Foundation commented: “It’s crazy to punish the FASB for wanting to do nothing more than better enable investors to price risk better. As with financial reporting standards more generally, enhanced tax transparency will simply enable capital markets to make more informed economic decisions, which in turn improves capital allocation and economic efficiency.”
For the very latest news and analysis on all things pCbCR, visit the Fair Tax Foundation pCbCR Resource Hub.
Headline image generated by Perplexity AI.
