Corporate Tax Disclosures Let Investors Peer Into the Black Box

Investors are getting a lot more information about an area that’s been a mystery in the past: What goes into companies’ tax bills.

The US, the European Union, and Australia all have new or forthcoming requirements for companies to publicly disclose more details about the makeup of their tax payments—especially where they’re paying. That can help investors compare companies and shed light on instances where multinationals might be locating their profits in lower-tax countries to cut their payments.

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The new requirements are already forcing companies like Meta Platforms Inc., Merck & Co. Inc., and Caterpillar Inc. to disclose that they’re making big tax payments in countries like Ireland and Switzerland that have long had a reputation as “tax havens.” Meta paid Ireland $567 million in income taxes last year, according to its first-ever disclosures as part of new US accounting requirements.

Still, the different regions’ rules differ significantly—in some ways they complement each other, but gaps in information remain.

On this week’s Talking Tax, Bloomberg Tax reporters Jorja Siemons and Michael Rapoport discuss the new sets of rules, how the new disclosures will play out, and how companies are responding to them and in some cases trying to get around them.

Do you have feedback on this episode of Talking Tax? Give us a call and leave a voicemail at 703-341-3690.

This transcript was produced by Bloomberg Law Automation.

David Schultz:

From Washington, I’m David Schultz, and this is Talking Tax.

We know a little bit more than we did a few months ago about how much big publicly traded companies are paying in taxes. And that’s because of new corporate disclosure regulations that have gone into effect both here and overseas. Today we’re going to be talking about the impact these new regulations are already having, and about why some of them come with some pretty big loopholes.

Our guests today are Bloomberg tax reporters Jorja Siemons and Michael Rapoport. And I started our conversation by asking Jorja to explain to me what these new disclosure rules are here in the U.S. and where they came from.

Jorja Siemons:

Public companies have been required to include expanded details about their income tax obligations in annual financial reports. The U.S. board that writes accounting rules, called the Financial Accounting Standards Board, or FASB, issued guidance back in 2023 calling for companies to disclose income taxes paid to federal, international, and state governments. If jurisdictions under those rules account for more than 5 percent of companies’ total tax obligation, the board now requires that businesses list those places individually.

Public companies are also subject to other requirements to quantify how the effect of new tax laws in other categories helped them calculate their effective tax rate so investors can compare that rate to the statutory rate. Basically, the board wanted to make income tax information more comparable company to company so that investors would find it more useful and could see more streamlined information when they put those annual financial reports together.

David Schultz:

But tell me about why the FASB did this. I mean, you sort of explained the basic rationale, but I guess I’m not really used to hearing about new regulations coming out during the Trump era that force companies to disclose more information, you know, tighter regulations. What’s going on here? Why did FASB do this now?

Jorja Siemons:

Yeah, so investors have pushed for a long time for companies, including multinationals, to disclose key details about their tax exposure, and they have said that the status quo before these rules took effect was a black box, and income tax obligations were opaque. FASB, which is an independent board, has been working on these rules for a very long time.

David Schultz:

Before Trump took office.

Jorja Siemons:

Before Trump took office, and they have noted that the consistency of information is really important to them, to the board members. When companies are providing different sets of information, it can be hard for investors to compare competitors and assess trends. And so, this effort was really FASB saying, you know, we hear you, what the investors are saying, and we want to provide information to you that is more useful as you think about the cash flows of different companies.

David Schultz:

Well, these sorts of new rules are not only happening in the U.S., they’re happening in other countries and regions as well, and let’s bring Michael Rapoport into this conversation here. There are similar efforts going on in the EU and Australia. Michael, how does this differ?

Michael Rapoport:

Well, the EU and the Australian requirements are what’s called public country-by-country tax reporting. Companies have to publicly disclose the taxes they paid and a variety of other financial information for their business in dozens of different countries. Big U.S. companies fall into this too if they do business in the specified countries.

In the EU, they’ve already had to file reports like this on a non-public basis in recent years, but now they have to do it publicly. All EU member states have implemented these requirements and companies’ reports are coming in. In Australia, we’ll see the first reports under their requirements later this year.

The impetus behind them is much the same as in the U.S., to require companies to be more transparent about what goes into their tax bills, especially the taxes and income in other countries where they do business, and to give investors more information they can use to analyze companies’ finances and raise questions with companies.

David Schultz:

However, though, it sounds like for the EU rules, there’s a pretty big loophole, which is the commercially sensitive data exception. Mike, can you tell me about that and sort of how that plays out?

Michael Rapoport:

Sure. The EU requirements provide that companies can delay their tax disclosure for five years if it’s deemed to be, quote-unquote, commercially sensitive. That is, disclosing too much about their business in a way that would help competitors or potentially compromise their market position.

Australia has a provision like that also, but on a much more limited basis in terms of exemptions. But in the EU, companies can tell the EU, we’re not going to disclose this information for five years because we’re worried about commercial sensitivity.

David Schultz:

Would it be an exaggeration to say that this kind of makes these rules sort of almost toothless like in the EU, or is that really unfair to what they’ve done in the EU?

Michael Rapoport:

I don’t know if you could say toothless, but it certainly compromises the amount and degree and quality of information that investors are going to get. There are companies that have filed full disclosure reports that are trying to follow the spirit of what the EU regime requires, but there are also companies that are essentially saying, no, we’re invoking this exemption when we’re not going to disclose this at the time being.

David Schultz:

Okay. Well, let’s talk about what we’re learning because we have all these disclosures. What do we know now? Mike, let’s start with you. What have we learned about the disclosures over in Europe and in Australia?

Michael Rapoport:

Well, I mean, we’re definitely seeing some information we didn’t have before. In the US and in the EU, I mean, companies are disclosing information that they had not disclosed and certainly not disclosed publicly in the past.

In the US, you have companies like Amgen, Merck, PayPal, reporting payments in countries like Ireland, Switzerland, Singapore, that are often regarded as tax havens. We’re also seeing how the US and the EU reports can fit together and complement each other. Caterpillar is a good example. They said in their US report that they paid $500 million in taxes to Switzerland last year. That’s something that’s not in its EU report.

But however, the EU report does say something very interesting that’s not in the US report. Caterpillar recorded $272 million in profits in 2024 in the British Virgin Islands, which is another tax haven, and paid no taxes on those profits. So you do have cases in which companies are not only being forced to disclose more, but in a way that you have the US and the EU requirements sort of complementing each other.

David Schultz:

Jorja, what’s happening here in the US? Are we seeing these same kinds of revelations here for US-based companies?

Jorja Siemons:

Yeah, well, Michael pointed out some of the US companies and the disclosures that they have provided. Our colleague Ryan Hogg has reported also that Meta paid Ireland $567 million in income taxes last year. And it’s important to note that that detail and the details that Michael has talked about are only made possible because of these disclosures. These are new things that we’re learning alongside other people that use financial statements, such as investors, watchdog groups, et cetera.

David Schultz:

Tell me about the pushback that these rules have gotten. And I want to know, A, who is pushing back, and B, whether they’ll be successful in, at some point, maybe rolling these regulations back or, as we saw in Europe, diluting them to the point where they’re not as strong as they could be.

Jorja Siemons:

So the pushback that’s occurred has notably been before these rules took effect. And that pushback came specifically from business groups and GOP leaders. From a company’s perspective, the income tax details required under the accounting update have required a significant data collection effort and a much heavier workload for tax and accounting teams.

The Chamber of Commerce told the board, told FASB, when the rules were still being drafted, that the disclosures would be very expensive for companies to comply with. They might need new systems to collect and categorize data. And companies with operations around the world would be especially challenged.

On the Hill, House Republicans told the board in 2023 that the disclosures would put U.S. multinationals at a competitive disadvantage by revealing too much about their tax strategies. And Republicans on the Hill even threatened last summer to hold up funding for the U.S. accounting board over the rules.

Notably, the accounting board has said, in its final guidance, that the required details are at a high enough level to diminish concerns about competitive disadvantages. And taxing authorities already accumulate information regarding these details well beyond the accounting disclosures.

David Schultz:

Those are some pretty serious threats, but it sounds like they did not win the day.

Jorja Siemons:

Yes. And I think it’ll be interesting to see how the SEC under the Trump administration thinks about these income tax disclosure rules and talks with companies about them. Obviously, this is the first year we’ve seen this large amount of new data come in. And I think some of the investors and other people I’ve spoken with have said, let’s give it a few years and see how these details are being used, what people are finding helpful or not helpful, et cetera.

David Schultz:

Mike, I’ll give you the last word. Do you think that these sorts of new regulations are here to stay? Or do you think that the people who were trying to block them are now going to try to repeal them? And will they be successful?

Michael Rapoport:

Certainly, companies are still grumbling about this and want to disclose as little as possible. It’s true that also there continues to be pushback against them. And here’s one example. Just within the last couple of weeks, the U.S. Trade Representative said in its annual report about foreign trade barriers around the world that it considered the Australian country-by-country tax reporting regime to be a foreign trade barrier.

Businesses and their advocates say this whole effort has been politically motivated, that the real aim behind these disclosures is not really to give investors more information, but to name and shame companies and thereby push them into paying more in taxes. That said, there’s no real organized effort likely to be successful in terms of rolling them back. I think these companies are going to continue to try to push back against them and disclose as little as possible. But I think the requirements themselves are here to stay.

David Schultz:

All right. Well, that was Michael Rapoport and Jorja Siemons talking with us about all the things that we know about companies now with these new regulations. Thank you guys so much for talking. I really appreciate it.

Michael Rapoport:

Thank you.

Jorja Siemons:

Thank you.

David Schultz:

And that’s it for today’s podcast. You can find up-to-the-minute news on the latest tax and accounting developments at our website, news.bloombergtax.com. That website, once again, is news.bloombergtax.com.

Today’s episode is produced by myself, David Schultz, and our editors today were Amelia Gruber and Vandana Mathur. From Washington, I’m David Schultz. Thanks for listening.