Coalition urges SEC to require disclosure of more tax info

The Securities and Exchange Commission (SEC) should update its rules to require U.S. multinational corporations to disclose more tax information, a financial-transparency coalition argued in a report released Monday.

“As multinational corporations have increasingly relied upon complex, international tax strategies to affect their bottom lines, the SEC’s disclosure framework has not kept pace,” the Financial Accountability & Corporate Transparency Coalition wrote in the report. “It’s time for the SEC’s disclosure rules to catch up.”

The report was issued shortly after the European Commission ruled last month that Apple owes Ireland $14.5 billion in back taxes because the Ireland gave the company an unfair advantage over other businesses.

“As we saw recently with Apple, shareholders are increasingly at risk from the dearth of information available to them about the tax practices of the companies in which they invest,” said FACT Coalition deputy director Clark Gascoigne in a news release.

Currently, corporations’ managers have control over almost all aspects of determining what to disclose, and investors don’t have the ability to determine the accuracy of company’s financial information.

“Essentially, a company may disclose some information related to its offshore assets and taxes, but that information—if any—is often so piecemeal that investors cannot reasonably determine if the resulting judgments are accurate,” the report said.

The coalition added that “existing tax disclosures can be used to hide actual tax payments, exaggerate U.S. or other country-specific tax rates, and overstate tax assets.”

The report argues that investors need more information about companies’ tax practices in order to value them and learn about how they use offshore funds. Additionally, investors are increasingly interested in the long-term social and economic impacts of the tax strategies of the companies in which they invest.

The FACT Coalition recommended that the SEC should require corporations to disclose certain tax information on a country-by-country basis, including profit or loss before taxes, income tax paid and the effective tax rate.

While businesses’ tax practices are best assessed on a country-by-country basis since each country assesses their own taxes, the current structure for disclosures only gives information on U.S. taxes and all foreign taxes combined, according to the report.

Additionally, the coalition recommended that the SEC should make rule changes and/or issue guidance to specify certain tax information that corporations need to disclose.

Among other things, corporations should be required to disclose their U.S. and foreign effective tax rates and explain any effective tax rates that are substantially lower than the statutory tax rates. They should also disclose significant tax incentives and benefits they receive from foreign countries, the FACT Coalition said.