After a number of false starts, the Financial Accounting Standards Board (FASB) decided on requirements for companies to release tax information to the public and specifically to investors. The requirement won’t go into effect for a couple of years but businesses need to start thinking about this change now. In the future financial reports are going to have new, tax-related information included. This will include income tax paid in a given year and the net amounts of any refunds (from any source, including foreign taxes, state taxes, and federal taxes).
Accounting Today reports that while there was an original proposal that required quarterly reports the initial requirement will be for yearly reporting. The FASB has been working on these specific changes since 2021. Other sources note that it has been a seven-year-long process to finalize the new rules. One of the primary reasons for the changes include investors not having detailed information on the tax burden of companies operating in many jurisdictions.
The requirements differ for publicly traded and private companies. The former need to comply by 2025 while private companies have an extra year to comply. Quarterly reporting begins the following year, respectively, for both. There are also some specific requirements for publicly traded companies. Among these is the requirement for details in tax rate reconciliation reporting and a table showing statutory versus effective tax rate and a number of other details. Many businesses, if not most, may want to consider professional help for such requirements.
Another notable requirement is that when a company pays at least five percent of total tax payments in a specific jurisdiction that jurisdiction will need to be listed individually with the amount paid. There was a change in the original proposal. Companies will NOT be required to share information for jurisdictions that previously hit the five percent requirement but do not in subsequent years.
Previously companies were not required to list companies by jurisdiction at all. It isn’t difficult to imagine why such information might be important to investors–especially in a comparative sense. Looking at tax liability going up in a given jurisdiction might well inform an investor’s decision-making related to investment. CFO Dive has additional information on the new rules and their implications.
The FASB, established in 1973, is a non-profit, independent organization that establishes financial accounting and reporting standards. These apply to public, private, and other non-profit companies and organizations following Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission (SEC) and many other organizations as setting standards in this area. The FASB is supported and overseen by another private, non-profit, the Financial Accounting Foundation.