Americans for Tax Fairness and its allies will pressure the Securities and Exchange Commission to require U.S. corporations to disclose all of their foreign subsidiaries and the amount of taxes those subsidiaries owe the United States.
“The SEC should adopt a strong regime for disclosure of all corporate subsidiaries. Based on studies done by ATF and numerous other organizations, it is clear that the SEC’s current standard for subsidiary disclosure is inadequate. It is also critical that corporations be required to disclose their subsidiaries’ names, location, legal entity identifier number and their relation to the parent entity,” Americans for Tax Fairness Executive Director Frank Clemente wrote in the organization’s official comment submitted to the SEC.
Clemente added that the SEC should require disclosure each year on a country-by-country basis of those subsidiaries’ revenues, profits or loss before taxes, income tax accrued for the current year, income tax paid on a cash basis, effective tax rate, stated capital, accumulated earnings, number of employees and tangible assets other than cash or cash equivalents. He said corporations should also be required to report on the aggregate amount they would owe in U.S. taxes should they repatriate their offshore earnings, and provide a country-by-country estimate of those taxes owed.
As part of its broader “Disclosure Effectiveness” project, the SEC requested public comments on business and financial disclosure requirements.
In addition to ATF’s official comment, 21 organizations signed a letter urging increased disclosure of corporate offshore subsidiaries and the use of tax havens, and ATF submitted public comments signed by 16,302 ATF members and supporters.
“It is critical that investors, lawmakers and the general public have access to this information. We need to know where U.S. corporations are operating, whether they claim to be making significant profits in tax havens, how much tax – if any – they are paying on those profits, and the taxes they owe the United States,” concluded the comment signed by ATF members.
The need for full disclosure of corporate subsidiaries and related financial information is highlighted by the growing total of untaxed profits held by the growing number of offshore subsidiaries of U.S. corporations. It is estimated that 303 U.S. multinationals now have a combined $2.4 trillion in profits offshore, based on company filings with the SEC examined by Citizens for Tax Justice. Just one-sixth (55) of these 303 companies disclose the tax rate they are paying on these offshore profits and how much they would owe if they repatriate the funds. Based on that information, Citizens for Tax Justice estimates these corporations owe up to $700 billion in U.S. taxes.
Yet current SEC regulations and enforcement practices allow corporations to withhold important information about their offshore subsidiaries, even including how many there are. An investigation by ATF uncovered 78 previously undisclosed subsidiaries of Walmart registered in 15 offshore tax havens, which together held over one- third of the parent corporation’s $205 billion in total assets.
Another ATF report determined that the amount of profits Pfizer holds in offshore subsidiaries was twice as much as it was reporting to the SEC – at least $150 billion rather than the $74 billion it had reported. Such information was very relevant to Pfizer’s planned but ultimately failed merger/inversion with Allergan, an Irish firm, as the company could have avoided up to $35 billion in taxes owed to the United States.
“These important discoveries were only made with difficulty and through inference. Investors and other interested parties are entitled to complete and timely information from the corporations themselves on their offshore operations, including foreign tax obligations. Such information has become especially important in recent years with the increasing crackdown by foreign entities on corporate tax-avoidance schemes,” Clemente said in ATF’s comment.
“Without such information, investors are less able to make investing decisions based on a true picture of a corporation’s fiscal health. Regulators, lawmakers and citizens are similarly hampered in their ability to hold corporations accountable for upholding their public responsibilities, including paying their fair share of domestic taxes,” Clemente said.