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FASB to Require More Tax Disclosure

S.J. Steinhardt
Published Date:
Aug 31, 2023


In a move to provide investors with greater transparency, the Financial Accounting Standards Board (FASB) voted to require companies to disclose more about the taxes they pay, starting as soon as 2025.

Companies' financial reports will need to include the year-to-date amount of income tax paid, net of refunds received, to state, federal and foreign tax authorities, according to Bloomberg. The effective date for public business entities will be in 2025. For interim reporting, it will start in the first quarter of 2026. For private companies and other types of companies, it would be starting with their annual reports in 2026 and interim reports in 2027.

The unanimous vote came after a lengthy process. FASB’s first proposal, in 2016, would have required companies to distinguish their U.S. from their foreign income taxes, among other changes. In 2019, the Board updated the proposal, requiring more disclosure. This past March, it proposed an accounting standards update to address requests from investors for better income tax disclosures from public companies.

During its consultations in 2021 on its future agenda, the Board heard concerns from investors and analysts that the existing income tax disclosures didn't offer enough information to help them understand the tax position of a company that operates in multiple jurisdictions, Accounting Today reported.

Under existing rules, public companies must report the total amount of cash taxes they pay at least once a year and are not required to break out their tax and profit data by country. Companies must also disclose their effective tax rate, which is the ratio between their tax expense and pretax income.

Businesses have argued that the changes would lead to more confusion among investors and that current disclosure is sufficient for understanding their tax profile, and additional information would put the firms at a competitive disadvantage.

One such company, Mastercard, objected to the proposed requirements because “The additional information which would be required [than that required by the International Accounting Standards Board (IASB)] to be disclosed by U.S. registrants may be commercially sensitive,” it wrote to the FASB in May, The Wall Street Journal reported

In its comment letter, health-insurance company UnitedHealth Group claimed that the additional disclosure could create confusion for investors, lenders and creditors by disproportionately presenting income tax information that it considers immaterial or unimportant, according to the Journal.

Investors were supportive, but thought that more detail would be needed.

“We believe more aggressive management of tax issues could, at times, provide evidence that a company’s management team and board may have a risk tolerance that is greater than we would prefer given our long-term (often 6-8 year) average holding period,” Robert Wilson, an investment officer at MFS Investment Management, wrote to the FASB.

The CFA Institute said in a July 20 letter that the proposed requirements won’t prove useful to investors, as the FASB has steadily reduced the scope of the project over the years, according to The Journal.

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