While there’s little debate that businesses will have to disclose much more tax information when new accounting standards go into effect late next year, the standards are not quite as onerous as they might have been.
After hearing from investors calling for more disclosure and businesses that wanted less, the Financial Accounting Standards Board made very few tweaks to the proposed new tax standard, with the few it did make being on the business-friendly side of the scoreboard, according to KPMG Partner Brett Weaver.
“Those who wanted more for the most part didn’t get it and those who wanted less for the most part didn’t get it,” Weaver told CFO Dive in a recent interview. “There are some exceptions of course and they’re really all on the side of business.”
As passed in a unanimous 7-0 vote last month, the new standards will require companies to disclose income taxes paid on a disaggregated basis and to identify jurisdictions — such as a country or state — that receive more than 5% of its total tax payments. Companies currently aren’t required to break out this information, CFO Dive previously reported.
Below are a few of the changes that the FASB did agree to make before voting on the new standards last month. They included:
- Unrecognized tax benefits: The original proposal for the new standard back in March called for unrecognized tax benefits, loosely defined as uncertain tax positions taken on firms’ tax returns that may be disallowed by authorities — to be disclosed for U.S. filers in the U.S. Businesses were concerned that it was a risk to a company because it could open the door to an audit as it would flag to some tax authorities that the company was taking an aggressive position on its taxes. “These arguments must have carried the day,” Weaver said. The FASB changed the standard so that companies can aggregate the unrecognized tax benefits rather than having to disclose them on a country by country basis, he said. “If I report it in aggregate, no particular country is going to know whether that number relates to their jurisdiction or some other jurisdiction that I’m operating in,” Weaver said. “So I think that was a decent win for companies.”
- Scratched quarterly tax disclosures: The FASB agreed to scale back the periods in which companies will be required to provide the more expanded tax disclosures, pulling back from its initial call for interim or quarterly reports, Weaver said. It would have been a lot of work for companies to increase what is now an annual tax reporting process four times a year. You’re just not built to do that,” Weaver said. The change shows that the FASB weighed the costs and benefits of the proposal and recognized the added costs that businesses would have borne for the more frequent reports.
- Effective date compromise: Some businesses had hoped that the effective date could be pushed out to 2026. The FASB ultimately landed on making it effective for public companies in fiscal years beginning after Dec. 15, 2024 and for private companies beginning after Dec. 15, 2025. “I think it’s kind of a bit of a compromise…so maybe some are disappointed on the effective date being a little earlier to tool up for a lot of the work this is going to require.”