Company Tax Disclosures & New Tax Transparency Requirements

This year, a wave of new company taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. disclosures is incoming—a response to increased transparency requirements from US accounting standards, the European Union, and Australia. The new rules require companies to produce data that can easily be misinterpreted, because the data will be messy and poorly suited for drawing strong conclusions.

The European Union and Australia have moved beyond the confidential regime established by the Organisation for Economic Co-operation and Development (OECD) last decade, requiring large multinationals to publish jurisdictional breakdowns of revenue, profit, taxes, and headcount. Additionally, companies that produce financial accounts following US Generally Accepted Accounting Principles must disclose some jurisdictional tax information as required by recent changes from the Financial Accounting Standards Board.

The data does provide new information, but that information comes with challenges of comparability across sources, questions of usefulness for policy discussions, and clear flaws in the reporting requirements.

Because this data could be used to develop misinformed policies or attack business practices (or government policies) that are unrelated to tax planning or avoidance, it is important to approach the data cautiously. Low taxes reported in a particular jurisdiction could be misinterpreted as avoidance when the reality is that investment activity or cyclical losses are influencing the numbers. A company may also settle past audits in a single year or be eligible for a tax refundA tax refund is a reimbursement to taxpayers who have overpaid their taxes, often due to having employers withhold too much from paychecks. The U.S. Treasury estimates that nearly three-fourths of taxpayers are over-withheld, resulting in a tax refund for millions. Overpaying taxes can be viewed as an interest-free loan to the government. On the other hand, approximately one-fifth of taxpayers u based on the laws of a particular jurisdiction. These details will not be clear in the data, but they will influence the data.

Unfortunately, these disclosures will likely shape public debates about multinational taxation, even though the underlying data is not fit for that purpose. As the disclosures come out, there are three questions that policymakers and the public should be asking.

What Does the Source of the Data Say About Its Usefulness?

There are two directions to take this question. First, for all the disclosures, the “source” is some combination of financial accounting concepts, including profits, cash taxes paid, deferred taxes, and other items. These data points are regularly reported in aggregate form by companies when they prepare their financial statements for their shareholders or the public.

However, the profits shown in financial statements are different from taxable profits. Taxable income, as defined in the tax codes of countries around the world, is not part of these disclosures. Financial (also known as “book”) income is different from taxable income in many ways, partially because of the way investment and common business activities are treated by the different standards and rules. For instance, a company may benefit from full expensingFull expensing allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings. It alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. in a country’s tax code while accounting rules require straight-line depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and disco.

The purpose of financial data is to inform shareholders based on accounting standards. Tax returns, by contrast, are meant to align with features of the tax code written by lawmakers who have different concerns than shareholders, such as tax revenue and deficits, administration and compliance costs, and economic incentives.

Because of this, the source limits the usefulness of the data for policy analysis.

Second, it is important to identify the disclosure regime. Is the data you are examining based on new requirements in US GAAP? Is it being reported because of EU or Australian rules?

Each reporting standard has its own approach and drawbacks. In a future post, I will dig into those differences in more detail. These differences mean that the same company may be required to report revenues, profits, and taxes differently under each of the standards. Such an outcome would not be proof that a company is trying to mislead tax authorities. The disclosure rules themselves will create this confusion.

If one examines numbers produced under the EU and Australian public country-by-country rules, one might find different answers to what appears to be the same question. For instance, a single company reporting under the two standards could report two different revenue numbers in the same jurisdiction because the EU and Australian requirements are different. The EU standard will tend to result in higher reported revenues where related-party transactions are significant.

Essentially, a company with multiple entities in a jurisdiction that provides goods and services across entities will have to record those intra-company revenues in its total revenue, even though revenue from third parties is what generates profits. This could occur at a distribution hub where products are moving from a company’s own production facility to entities that are meant to take products to market.

The source question ultimately means that calculating statistics like effective tax rates will be misleading because the underlying data is not built on tax policy information, and the standards for disclosing the data undercut comparability and efforts to draw conclusions from multiple disclosures.

How Might Tax Authorities Use This Data?

As mentioned above, country-by-country reporting has been a feature of tax compliance for about a decade. Large multinationals have had to follow rules in the US and elsewhere to disclose data to tax authorities on revenues, profits, employees, assets, and both cash and accrued taxes.

The data for individual companies is confidentially reported. That confidentiality is based on agreements at the OECD that established the standards. The new EU and Australian rules clearly depart from that agreement.

Tax authorities have been able to use this data to assess risks in their taxpayer population and evaluate whether enforcement actions might be justified. For instance, a government might identify misalignment between profits and assets or employees that could lead to further study of a company’s tax practices.

The answer to the question, then, is simply that tax authorities have already had this data available to them and could use it as a supplementary tool in their enforcement.

That raises the question about the value of public disclosure of this data. It clearly does not materially expand the enforcement toolkit available to tax authorities.

Advocates have justified the new disclosures on the grounds that investors expect more disclosures or that public accountability is necessary. But because of the source and interpretation challenges inherent in the data, the reporting is more likely to cause public confusion than to increase public understanding about companies and their global footprints.

What Does the Data Show About Tax Policy?

As discussed above, the foundation of financial data means that there is no direct link between the data disclosed and tax policy. Taxable profit is completely absent from the disclosures. However, there are two tax concepts that many will likely lean on to draw conclusions about tax policy.

The first is cash taxes paid. This is simply the amount of tax a company pays in a single year. But this alone is ambiguous. The payment could be directly related to taxable profits in that same year, inflated by payments in prior tax years because of a settled auditA tax audit is when the Internal Revenue Service (IRS) or a state or local revenue agency conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return., or deflated by refunds of prior taxes paid.

The second is accrued tax. This is a tax liability that a company expects will be paid out in cash taxes over time. It is possible that actual cash tax payments will be greater or smaller than the accrued tax. Accrued taxes do not say anything about how quickly that tax amount will be paid.

Both cash and accrued taxes can be impacted by timing issues. As mentioned, cash taxes can be impacted by a single year when an audit of prior years is wrapped up, or a refund is due to the taxpayer. The same is true for accrued taxes. If a company has a deferred tax liability due to provisions in the tax code (like full expensing), current accrued taxes will be lower.

A single year of tax disclosures should therefore not be used to draw strong conclusions about a company’s tax profile.

Taken together, these limitations mean the data cannot reliably indicate whether a company is paying “too much” or “too little” tax relative to any relevant benchmarks.

Conclusion

The new data disclosures will draw significant attention in 2026 and beyond. However, because the data is rooted in financial accounting concepts, affected by timing issues, and shaped by inconsistent reporting regimes, it is poorly suited for drawing strong conclusions about tax policy or corporate behavior.

Analysts, journalists, and policymakers should therefore approach the data with caution and focus on the questions outlined above to avoid misinterpretation.

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