Accounting
Tax reporting transparency reaches a tipping point
Transparency is a critical component of sustainability that is foundational across the environmental, social and governance pillars: transparency in the supply chain, transparency in employee management and transparency in business decision-making.
To achieve sustainable business models and greater long-term value creation, transparency with stakeholders is fundamental. Tax is one of the items that businesses need to consider within this broader transparency trend.
We have reached a tipping point in global corporate tax reporting and disclosure. Regulators, investors and the public are demanding ever greater tax transparency, and companies must navigate evolving, complex reporting requirements around the globe. From expanded Financial Accounting Standards Board disclosures in the U.S. to public Country-by-Country Reporting legislation in the EU and reporting requirements under countries’ new Base Erosion and Profit Shifting 2.0 Pillar Two global minimum tax rules, companies face an array of new tax information responsibilities.
Many of these tax reporting and disclosure regimes are coming online imminently. By proactively assessing these changes, highlighting the global tax footprint and managing the level of tax transparency in ESG agendas, companies can position themselves to tell their own story. Those that proactively adapt to this rapidly changing tax reporting and disclosure landscape will be better equipped to address risks, embrace opportunities and effectively communicate their tax narrative to the wide range of different stakeholders.
Tax reporting here, there and everywhere
In the United States, in the EU and around the world, tax transparency is becoming commonplace, as governments and regulatory bodies seek additional visibility into corporate tax profiles. In a recent move that reflects the new corporate tax reporting environment, FASB late last year approved expanded income tax disclosures for U.S. companies that file under U.S. GAAP.
At the same time, more widespread public CbCR disclosure obligations are being enacted around the globe. Within the EU, 21 member states currently have either proposed or enacted public CbCR legislation following the approval of an EU CbCR directive in December 2021. Differences in local rules, reporting requirements and timing can present challenges to multinational entities headquartered outside the EU and operating in multiple EU jurisdictions.
Additionally, the BEPS 2.0 Pillar Two initiative of the Organization for Economic Cooperation and Development is creating new, complex tax reporting requirements for MNEs. Many countries are beginning to implement Pillar Two legislation, but the specifics and timing differ from country to country. Pillar Two calls for a global minimum tax of 15% for multinational corporations with group revenue of more than €750 million, and the necessary calculations require a substantial volume of data, some of which has not been maintained by tax departments for other purposes.
The details of these various initiatives differ, but taken together, they share common themes and signal a broad shift in expectations about tax disclosures and reporting. In order for companies to keep up, they must transform their systems, processes and overall frameworks for tax reporting.
Opportunities and risk in a more transparent world
Greater tax transparency is quickly becoming the norm, and tax authorities around the globe are increasing their reporting requirements. Understanding the gaps and overlaps between the various tax reporting and disclosure regimes presents an opportunity to re-examine and leverage existing data and systems. Doing so can reveal ways to streamline cross-functional processes and can provide stakeholders with a more complete view of the financial impact on communities and society.
While regulators around the globe are heavily focused on income tax disclosures, those represent only one element of companies’ total tax contributions. Income taxes are significant, but the amount of non-income taxes companies pay similarly is often very significant. Companies also play a role in tax collection when they collect value-added taxes, sales and use taxes and payroll taxes, potentially alleviating some of the burden of governmental entities.
Adapting to this world will require addressing new data and technology needs associated with addressing the above-mentioned tax disclosure and reporting requirements (e.g., FASB, public CbCR and Pillar Two reporting requirements). Collecting and analyzing the necessary data for reporting will require an in-depth process review and level of granularity not previously required. By proactively addressing these potential barriers and investing in suitable technology tools, companies can help facilitate more accurate, efficient, consistent and timely reporting and disclosures.
While this may entail new costs, being able to collate data globally for all tax types allows for enhanced analytic capabilities and enables companies to make their societal contributions clearer, a key element of the ESG agenda. Companies will be better able to explain their tax situations to interested parties and demonstrate how their tax contributions support their communities.
In this way, companies can take ownership of their tax narrative, which enhances trust with investors, customers and the public. This, in turn, can create a competitive advantage. Those that fall behind in responding to global trends calling for a more complete view of companies’ corporate tax profiles risk forfeiting control of their tax narrative and, in the process, losing stakeholder and public trust.
Making transparency work — meeting the challenge
Many companies have already started the tax transparency journey as part of their ESG agenda and are highlighting how tax obligations reflect societal commitments. One potential method is global tax footprint reporting, which can bridge the transparency gap and provide a more complete and holistic view of a company’s tax contributions.
Reassessing data and technology needs and reporting practices in light of increasing transparency trends and reporting requirements allows companies to connect the tax function in a more meaningful way to ESG practices. By promoting a greater understanding of the complete tax picture, the tax function can add clear value to the ESG agenda.
Proactively addressing transparency and reporting requirements can help companies establish themselves as forward-looking, engaged contributors to communities and society, able to balance business and strategic objectives with obligations to tax authorities, regulatory bodies, investors and the broader public. Below are some questions that can help start the process.
Questions to consider
- How does tax currently fit into the company’s ESG reporting framework, and how might this plan need to change given expanding reporting obligations to tax authorities and public expectations for transparency?
- What is the company’s approach to showcase its global tax footprint and access the data and technology platforms needed across various tax jurisdictions to comply with new tax reporting requirements?
- What is the communication strategy for helping internal and external stakeholders understand the nuances of the tax data disclosed to the public?
Tax transparency is here to stay, and companies need to develop action plans to respond.
Kevin Dehner is EY Americas sustainability tax deputy leader. Other contributors to this article include Kristen Gray, EY Americas sustainability tax leader; David Campbell, EY Americas tax technology and transformation senior manager; and Colleen Sebra, EY Americas tax technology and transformation partner.
The House Ways and Means Committee held a hearing Tuesday to mark up the so-called “one, big beautiful bill” extending the expiring provisions of the Tax Cuts and Jobs Act while adding other tax breaks for tip income, overtime pay and Social Security income and eliminating tax credits from the Inflation Reduction Act for renewable energy as well as the Direct File and Free File programs.
“Today, this Committee will move forward on President Trump’s promise of delivering historic tax relief to working families, farmers and small businesses,” said committee chair Jason Smith, R-Missouri, in his opening statement. “The One Big Beautiful Bill is the key to making America great again. This moment has been years in the making. While Democrats were defending IRS audits on the middle class and tax carveouts for the wealthy, Republicans on this Committee got on the road, to hear from real Americans about how the 2017 tax cuts benefited them. This bill wasn’t drafted by special interests or K Street lobbyists. It was drafted by the American people in communities across the country.”
Democrats blasted the bill. “In 2017, Republicans passed a tax law that was supposed to pay for itself, raise wages, and help working families,” said ranking member Richard Neal, D-Massachusetts. “None of that happened. Instead, it exploded the deficit, worsened inequality, and left everyday Americans behind. Now they want to double down on the same failed playbook. One that rigs the system for billionaires and big corporations while everyone else pays the price.”
Among the provisions, the bill would make the expiring rate and bracket changes of the TCJA permanent and increase the inflation adjustment for all brackets excluding the 37% threshold, according to a
Other changes and limitations to itemized deductions would be made permanent, including the limitation on personal casualty losses and wagering losses and termination of miscellaneous itemized deductions, Pease limitation on itemized deductions, and certain moving expenses.
The bill is likely to go through some changes when it goes to the Senate. “Politically, we’ve been talking about the process for the last couple months,” said Mark Baran, managing director at CBIZ’s national tax office. “Congress is finally able to pass a concurrent resolution to unlock the budget reconciliation process.”
“The House and the Senate have completely different instructions on what they’re going to cut and how they’re going to score,” he added. “Some of that’s very controversial, and that needs to be worked out. But now we’re getting into the actual crafting of provisions and legislation.”
According to a
The bill would also allow businesses to include amortization and depreciation when figuring the business interest limitation through Dec. 31, 2029, while making permanent the excess business loss limitation.
In addition, the bill would retroactively terminate the Employee Retention Tax Credit for taxpayers who filed refund claims after Jan. 31, 2024.
In keeping with Trump campaign promises, the bill would eliminate taxes on tips for employees in certain defined industries where tipping has been a traditional form of compensation. There would be a new $4,000 deduction for seniors that phases out starting at $75,000 of income. The bill would also eliminate taxes on overtime pay.
The bill would give individuals an above-the-line deduction for interest on loans used to purchase American-made cars, but that would be capped at $10,000 with income phaseouts starting at $100,000 (single) and $200,000 (married filing jointly).
The bill would also increase taxes on certain private college investment income up to a maximum of 21% on universities with a student-adjusted endowment above $2 million.
It would also roll back some of the renewable energy provisions from the Inflation Reduction, including a phaseout and restrictions on clean energy facilities starting in 2029, while also limiting or eliminating clean housing energy and vehicle credits. The bill would sunset major IRA clean electricity tax credits, including the clean electricity production tax credit (45Y), clean electricity investment tax credit (48E), and nuclear electricity production tax credit (45U) begin phasing out after 2028 and finish phasing out by the end of 2031; repeal hydrogen production credit (45V) for facilities beginning construction after 2025, according to the Tax Foundation. It would also phase out advanced manufacturing production credit (45X) for wind energy components after 2027, for all other eligible components after 2031. Across several IRA clean energy credits, the bill would repeal transferability after the end of 2027 and further limit credits based on involvement of foreign entities of concern. On the other hand, it would expand the clean fuel production credit (45K), and tighten rules on the 126(m) limitation for executive compensation.
The bill would terminate the current Direct File program at the Internal Revenue Service and establish a public-private partnership between the IRS and private sector tax preparation services to offer free tax filing, replacing both the existing Direct File and Free File programs.
The Federal Accounting Standards Advisory Board is asking for input on emerging accounting issues and questions related to reporting entity reorganizations and abolishments as the federal government endures wide-ranging layoffs and reductions in force, including the elimination of entire agencies by the Elon Musk-led Department of Government Efficiency.
“Federal agencies and their functions, from time to time, have been reorganized and abolished,” said FASAB in its
Reorganization refers to a transfer, consolidation, coordination, authorization or abolition of one (or more) agency or agencies or a part of their functions. Abolition is a type of reorganization and refers to the whole or part of an agency that does not have, upon the effective date of the reorganization, any functions.
The Trump administration has recently moved to all but eliminate parts of the federal government such as the U.S. Agency for International Development and the Consumer Financial Protection Bureau, and earlier this month, Republicans on the House Financial Services Committee
FASAB issues federal financial accounting standards and provides timely guidance. Practitioner responses to the request for information will support its efforts to identify, research and respond to emerging accounting and reporting issues related to reorganization and abolishment activities, such as transfers of assets and liabilities among federal reporting entities. The input will be used to help inform any potential staff recommendations and alternatives for FASAB to consider regarding short- and long-term actions and updates to federal accounting standards and guidance in this area.
The questions include:
- Have any recent or ongoing reorganization activities or events affected the scope of functions, assets, liabilities, net position, revenues, and expenses assigned to your reporting entity (or, for auditors, your auditees)? If so, please describe.
- What accounting issues have you (or your auditees) encountered (or do you anticipate) in connection with recent or potential reorganization activities and events?
- Please describe the sources of standards and guidance that you (or your auditees) are applying to recent, ongoing, or pending reorganization activities and events.
- Have you experienced any difficulties or identified gaps in the accounting and disclosure standards for reorganization activities and events? What potential improvements would you recommend, if any?
FASAB is asking for responses by July 15, 2025, but acknowledged that late or follow-up submissions may be necessary given the provisional nature of the request. Responses should be emailed to [email protected] with “RERA RFI response” on the subject line.
Stock and crypto trading site eToro prices IPO at $52 per share
In the blogs: Higher questions
Republicans have a plan to add trillions of dollars to the national debt
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Economics1 week agoChina risks deeper deflation by diverting exports to domestic market
-
Personal Finance6 days agoI bonds investments and Trump’s tariff policy: What to know
-
Personal Finance4 days agoHow consumers prepare for an economic hit
-
Personal Finance4 days agoReal estate and gold vs. stocks: Best long-term investment
-
Economics6 days agoThe president has deleted a key tenet of American civil-rights law
-
Economics5 days agoAndrew Bailey on why UK-U.S. trade deal won’t end uncertainty
-
Economics5 days ago
Trump knocks down a controversial pillar of civil-rights law
-
Finance3 days agoAmerica failing its young investors, warns financial guru Ric Edelman