FASB tax disclosure plan draws fire
June 1, 2023
Some heated feedback elicited by the proposed new tax disclosure requirements suggests the road to consensus might still be rocky.
A controversial proposal from the Financial Accounting Standards Board that would require companies to provide more explicit accounting breakdowns on the taxes they pay and where they pay them drew some heated criticism from all sides during the public comment period that closed this week.
This is the third time in recent years that the U.S. accounting standard setter has sought to tackle the thorny issue of requiring more transparent tax disclosures, and some accounting professionals believe the recent rise in corporate environmental, social and governance initiatives may be the charm that enables the GAAP standards update to sail through to finalization.
But the volume and range of concerns elicited by the plan outlined in the 54 comment letters received by the FASB suggest the road to consensus on the new standards might still be rocky.
The feedback from companies and business and investor groups revealed many stakeholders are still grappling with major changes that will be needed for companies to be able to detail the income taxes paid to federal, state and foreign entities and to identify any jurisdiction — such as a country or state — that receives more than 5% of the company’s total tax payments. Companies currently aren’t required to provide this information, CFO Dive previously reported.
Even businesses that extended their general support for the plan called for tweaks to effectively rein in some of the new demands. For example, the New York City-based credit card giant American Express raised concerns about more frequent disclosures being required related to an estimated annual effective tax rate. Amex also expressed concerns about the need for ample time to accommodate the substantive new disclosures.
“The proposed amendments will require updates to registrants’ policies, systems, processes, and controls, including income tax software, data mapping, and disclosure templates. As such, we encourage the Board to consider providing entities sufficient time to permit for these changes to occur and recommend an effective date for periods beginning after December 15, 2024, with early adoption permitted,” American Express wrote in its May 30 comment letter signed by Joe Gagliano, executive vice president, global head of tax at Amex.
In contrast, other groups looked at it through the investor lens, such as the Financial Accountability & Corporate Transparency organization that said it was “encouraged” by the proposal even as the requirements would fall “short of providing a clear, complete picture of a given multinational’s enterprises tax activities.”
Among the entities with more hardened stances was the U.S. Chamber of Commerce, which called for the proposal’s “immediate withdrawal and reconsideration,” and asserted that there was “no compelling need for the information beyond what companies already provide.”
Further, the language of the chamber’s comment letter raised the specter of the cultural backlash that has threatened the advancement of a proposed Securities and Exchange Commission rule that would require publicly traded companies to provide detailed disclosures on carbon emissions and climate risk.
“The proposal reflects the efforts of politically driven activists in seeking to compel firms to disclose information —using GAAP under the guise of providing decision-useful information for investors — to name, shame, or otherwise vilify companies, influence tax policy, increase taxes on businesses, and deter investment,” the chamber stated in the May 30 comment letter signed by Thomas Quaadman, executive vice president with the chamber’s Center for Capital Markets Competitiveness and Watson M. McLeish, senior vice president of tax policy at the chamber.
With the comment period ended, the FASB staff will begin analyzing the feedback and then present its analysis to the board, which will then begin its deliberations on the matter, a spokesperson for FASB wrote in an emailed response to questions from CFO Dive. It’s too early to predict when the board will take up the matter, she said.