Financial Footnote Disclosures

Country-by-Country Reporting and Tax Transparency

Learn how country-by-country reporting can benefit investors and increase transparency in corporate tax practices

Published Date:
Mar 16, 2023
Updated Date:
September 11, 2023

Although taxes are commonly referred to as one of life’s certainties, governments and investors are realizing that tax disclosures in regulatory filings create plenty of risk and uncertainty. In recent years, various organizations throughout the world have made strides to require or encourage more transparency in tax disclosures. 

The information available in tax disclosures is related to environmental, social, and governance (ESG) reporting. Some examples include: 

  • The taxes a company pays is one way to measure how it contributes to the community in which it operates.
  • A company’s tax practices provide insight into its governance principles.
  • A company’s taxes are often one of the largest expenses on the income statement and can greatly impact financial performance. As a result, companies have many incentives to use diverse tax strategies to reduce income tax expenses.

Increasing transparency in tax disclosures enables investors to gain a better understanding of a company's performance in a variety of ways. One specific approach for enhancing transparency is through country-by-country reporting, which is where a company discloses the taxes paid in each country where it operates. Country-by-country reporting can provide insight into a company’s operations and tax strategies.

Current Status of Tax Disclosures

Public Disclosures of Requirements

Public reporting companies in the United States must comply with requirements set by the Securities and Exchange Commission (SEC) and Financial Accounting Standards Board (FASB). Together, the SEC and the FASB establish the disclosure requirements for public filings. Anyone can access these disclosures in 10-K filings by searching for companies using the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR).


Companies that file with the SEC in accordance with U.S. Generally Accepted Accounting Principles (GAAP) must prepare tax disclosures under Accounting Standards Codification (ASC) 740. Companies comply with ASC 740, in part, by disclosing the following:

  • Amount of income tax expense or benefit (ASC 740-10-50-10).
  • Effective tax rate reconciliation (ASC 740-10-50-12).
  • Significant components of income tax expense or benefit (ASC 740-10-50-9).

In Apple's 2022 10-K, the tax footnote spans about two pages and includes the provision for income taxes broken down by federal, state, and foreign taxes; deferred tax assets and liabilities; uncertain tax positions; and the effective tax rate reconciliation.

Apple, Inc. (2022 10-K): Effective Tax Rate Reconciliation

Since its implementation, ASC 740 has provided investors with more information. However, it's important to note that ASC 740 is not comprehensive, as evidenced by the additional requirements set by the SEC and recommendations from other organizations.


The SEC's tax disclosure requirements go beyond the FASB mandate. These requirements are codified in 17 CFR § 210.4-08 - General notes to financial statements, specifically in Paragraph (h). According to PwC, the disclosure requirements include:

  • Identifying the components of income (loss) before tax expense (benefit) as either foreign or domestic.
  • Separately stating for each major component of income tax expense (i.e., current and deferred) the amounts applicable to US federal income taxes, foreign income taxes, and other income taxes.

These SEC requirements pertain to both total pretax income and total tax expense. As a result, companies have the flexibility to disclose tax information on an "overall" basis. However, this may present challenges for investors seeking to understand how income tax expenses are linked to specific countries of operation.

Nonpublic Disclosure Requirements

Companies are obligated to comply with the tax filing rules set by the Internal Revenue Service (IRS). The filings provided to the IRS offer information to government entities, but are not accessible to the public.


The current IRS international tax filing requirements mandate that United States multinational enterprises must disclose profit, income taxes paid, and other operational data for each tax jurisdiction in which they operate. For a parent entity to be recognized as a United States multinational enterprise, its revenue must exceed $850 million. These enterprises use Form 8975 to complete the filing, with a Schedule A attached for each separate tax jurisdiction. These filings provide governmental entities with a comprehensive view of how large companies operate, but due to the confidentiality of tax filings, they offer no concrete data to the public or investors. Given that most companies on major market indexes surpass the revenue threshold, using the IRS requirements as a model for publicly available country-by-country tax disclosures could be a suitable starting point.

Voluntary Disclosures

Numerous organizations are promoting ESG reporting globally. The World Economic Forum (WEF), for instance, urges businesses to improve their disclosures. In other cases, companies can register with entities like the Global Reporting Initiative (GRI). Companies must comply with applicable standards to assert that a sustainability report has been produced in line with that organization.

Global Reporting Initiative

Founded in 1997, the Global Reporting Initiative (GRI) aims to promote sustainable corporate governance and accountability. Currently, over 500 companies from over 70 countries have partnered with GRI. While GRI covers various issues, its recommendations on country-by-country tax disclosures have become the "gold standard" for transparency between corporations and investors. GRI's country-by-country tax standard, Disclosure 207-4, specifies the information that companies must disclose to meet the standard, including:

The reporting organization shall report the following information:

  1. All tax jurisdictions where the entities included in the organization’s audited consolidated financial statements, or in the financial information filed on public record, are residents for tax purposes.
  2. For each tax jurisdiction reported in Disclosure 207-4-a:
    1. Names of the resident entities;
    2. Primary activities of the organization;
    3. Number of employees, and the basis of calculation of this number;
    4. Revenues from third-party sales;
    5. Revenues from intra-group transactions with other tax jurisdictions;
    6. Profit/loss before tax;
    7. Tangible assets other than cash and cash equivalents;
    8. Corporate income tax paid on a cash basis;
    9. Corporate income tax accrued on profit/loss;
    10. Reasons for the difference between corporate income tax accrued on profit/loss and the tax due if the statutory tax rate is applied to profit/loss before tax.

An example of a company that adheres to GRI standards is the oil and gas corporation, Shell. In 2020, Shell released a comprehensive "Tax Contribution Report" that spans 157 pages. The report fully aligns with the GRI's standards, including disclosures by country, even in locations where operations are insignificant.

Royal Dutch Shell PLC (2020 Tax Contribution Report): Taxes Paid in the United States

Changes to Tax Disclosure Requirements: The Future of Country-by-Country Reporting


The FASB has initiated the "Improvements to Income Tax Disclosures" project with the aim of enhancing the transparency and decision-making usefulness of income tax disclosures. According to its website, the FASB will complete an exposure draft in the first quarter of 2023, after which a comment period will be provided for companies to express their views on the proposal. The 2019 draft is accessible for review and may offer insights into what the FASB may propose in its upcoming draft. For instance, the 2019 draft recommends that "reporting entities could provide that disclosure at a country-level amount at a relatively low cost. However...the [FASB] decided not to propose the disclosure of income taxes paid at a country level." While the FASB did not propose country-by-country reporting in the 2019 draft, it is possible that tax disclosure requirements could change in the future.

The Board made many decisions during its November 30, 2022 meeting, including the following:

The Board decided to require that all entities disclose income taxes paid disaggregated by federal, state, and foreign taxes. The Board decided to require this disclosure for the year-to-date amount of income taxes paid on both an interim and annual basis. The Board decided to require that all entities disclose income taxes paid disaggregated by individual jurisdiction on the basis of a quantitative threshold of 5 percent of total income taxes paid. The Board decided to require this disclosure on an annual basis only.

These changes would reduce the amount of judgment required in tax disclosures, particularly the rate reconciliation, while also bringing the FASB’s standard in harmony with the SEC’s standard.


The SEC's Investor Advisory Committee convened in December 2022, during which SEC Chair Gary Gensler noted in his opening remarks that "Disaggregated tax reporting from international companies—in the specific jurisdictions in which those companies operate—could benefit investors." Although Gensler emphasized that his views were his own and not those of the Commission, his acknowledgement of the potential benefits of disaggregated tax reporting holds significance for investors.

At the December 2022 meeting, a panel discussed tax transparency. While Gensler seemed to support the FASB's efforts during his opening remarks at the meeting, reports about the panel discussion shed light on some shortcomings of the FASB's proposal. In her article, attorney Cydney Posner, who specializes in SEC reporting and compliance, elaborated on the meeting and pointed out the following:

One of the speakers at the meeting, while pleased that the FASB was listening to investors, seemed to view the FASB proposal as too cautious; it avoided requiring disclosure of information that might illuminate the thornier issues of tax risk. More specifically, he said, the requirements proposed for country-by-country disclosure covered only tax data, but would not provide the underlying data, such as country-by-country disclosure of revenue and income, that would enable an effective analysis of the sources of tax risks.

This speaker's insights highlight a potential limitation of the FASB's proposal. Without having a company’s revenue and income figures, any information about taxes paid, even on a country-by-country basis, is not particularly useful. For example, if a company disclosed where it is paying taxes, that does not provide information about where companies should be paying taxes.


Australia is set to be the first country to adopt mandatory public country-by-country tax disclosures. In response to BEPS Action Item 13, the Australian treasury proposed in their October 2022-23 Budget paper No. 2 that all significant global entities with annual income of 1 billion Australian dollars or more must prepare country-by-country tax information for public release (see pg. 17). This required disclosure is set to go into effect at the beginning of Australia's next fiscal year–July 2023. Further legislation to clarify the practical details of the proposal will continue to be released. 

European Union

Since 2016, the European Union has been in debates concerning country-by-country tax reporting. In late 2021, a directive was agreed on and EU member states have until June 2023 to create domestic legislation. Actual implementation of legislation must be enacted in June 2024 or in the first financial year starting after that time. The agreed upon directive requires entities with revenue greater than or equal to 750 million euros to disclose country-by-country data. Companies meeting this requirement must report this information both on their website and on the commercial registry of the member state. 

Under EU country-by-country disclosures, companies are required to report the following:

  • Nature of the activities;
  • Number of employees;
  • Total net turnover made, which includes turnover made with third parties and between companies within a group;
  • Profit made before tax;
  • Amount of income tax due in the country [resulting from] the profits made in the current year in that country;
  • Amount of tax actually paid in the current year; and
  • Accumulated earnings.

Impact of Country-by-Country Reporting on Investors

Just as Gary Gensler said, disaggregated tax reporting could benefit investors. In 2021, a group of investors representing almost $3 trillion in assets under management sent a letter to the FASB supporting disaggregated tax disclosures. They said the following:

This information is decision-critical for investors as we gauge risks, assess value, and ultimately, allocate capital. Investors require income and tax information at the country-by-country level to better understand a company’s financial, reputational, and economic risks to make informed investment decisions.

The specific information that this group of investors requested is available in the toggle below.

Decision Critical Information Requested By Investors

This group of investors is not alone in recognizing the importance of tax transparency. Shivaram Rajgopal, professor at Columbia Business School, wrote an article suggesting why investors need more detailed tax disclosures. He gave two main reasons:

(i) existing disclosures are so opaque that forecasting a firm’s sustainable tax rate, a key number needed to value a company, is very difficult; 

(ii) we know virtually nothing about corporate tax shelters in overseas tax havens from a firm’s financial statements.

To support Professor Rajgopal's first point, investors face increased financial risk when they are unable to accurately structure valuation models due to opaque disclosures. Without the complete breakdown of country-by-country taxation, these models are unable to function fully. As country-by-country tax information becomes more widely available to the public, financial models will be able to offer more accurate and impactful investment data.

While arguments can be made about the information needs of common investors, there is a lot to be said about the risk that investors face with the current disclosure requirements. Professor Rajgopal's second point highlights that corporations can implement aggressive foreign tax strategies without accountability to shareholders. Coca-Cola provides a prime example of the risks associated with such strategies. As reported by Bloomberg, Coca-Cola was using a transfer pricing strategy to shift profits to countries with more favorable tax rates, thereby reducing taxes owed. The IRS assessed a $3.4 billion tax bill, which Coca-Cola is currently appealing in court. When compared to the company's 2022 net income of $9.5 billion, this tax bill is clearly material.

Under existing tax disclosure requirements, Coca-Cola was under no obligation to inform shareholders of these tax risks. Had shareholders known about the tax implications of these transactions, they may have made different investment decisions or voiced concerns at annual meetings.

Increasing transparency is important for investors because not all international markets possess the same growth potential or risk profile. With country-by-country disclosures, shareholders can safeguard their investment by monitoring the foreign jurisdictions in which corporations are participating. Diligent study of the international economic climate and expanded disclosure enables investors to understand the underlying risks of their investments and make informed decisions.


Tax disclosures offer valuable insights into a company's financial performance, tax payments, and value of future cash flows, as well as its community contributions and governance principles. Although current regulations do not require public disclosure of country-by-country or disaggregated tax data, transparency requirements are evolving. Australia, the European Union, and the Financial Accounting Standards Board in the United States are leading the charge towards greater transparency, with country-by-country reporting becoming mandatory in some cases. Companies such as Shell are also taking voluntary steps to adopt transparent tax reporting standards like those established by GRI. These changes will enable investors to develop accurate valuation models, understand a company's underlying risks, and make responsible investing decisions.