(Law360) -- A group of investors and academics have called on the U.S. Securities and Exchange Commission to institute rules that would require publicly traded companies to provide greater transparency when reporting their tax obligations.
The U.S. Securities and Exchange Commission should mandate more reporting requirements, a group of investors and academics said in a letter. (AP)
The implementation of last year’s federal tax overhaul legislation, along with other developments, means that the SEC should require greater transparency on tax-related matters that are relevant to investors, the AFL-CIO and nearly 60 other investors and academics wrote in the letter sent Monday.
“The growing use of offshore tax strategies, the international response to rein in aggressive tax avoidance, and the potential tax liability for corporations engaged in these practices makes this information material for investors,” the letter said.
The Tax Cuts and Jobs Act — which has created greater complexity and is a reason why the SEC should mandate greater reporting requirements according to the letter — lowered the corporate tax rate from 35 percent to 21 percent; shifted the code to a more territorial system for foreign income; and included new international provisions on a global intangible low-taxed income, a base erosion and anti-abuse tax and a foreign-derived intangible income deduction, among others.
The letter also comes almost one year after the release of the Paradise Papers, which documented some companies’ extensive tax avoidance activities.
In May, Facebook Inc. — after its shareholders voted down a proposal that would have required the company to “pay taxes where the value is created” in the wake of the Paradise Papers release — declared that it complies with every tax law to which it’s subject.
“Broadly, our approach to tax is to ensure that we comply with all applicable tax laws and ensure the payment of all taxes as required by law,” the company said. “We are already taking proactive steps to change our tax policies to increase transparency.”
But Monday's letter emphasizes that the SEC should mandate certain reporting requirements to ensure that transparency.
“Given the scope of fines and risks arising from tax jurisdictions around the world, investors need more information to be able to evaluate the scope of tax risks [that] the company is running," the letter said.
Indeed, transparency is necessary for investors to determine a company’s risk exposure, Gary Kalman, the executive director of the Financial Accountability and Corporate Transparency Coalition, said in a statement after the letter was sent.
The SEC “should listen to those they are entrusted to protect and provide investors with the information they need to gauge the risks of aggressive offshore tax practices,” he stated.
The SEC could not immediately be reached for comment.