Publicly traded companies with foreign operations would be required to disclose their financial reporting on a country-by-country basis, exposing how they leverage foreign tax credits to reduce their tax liability, under legislation introduced this week in the House and Senate. 

The "Disclosure of Tax Havens and Offshoring Act," introduced by Chris Van Hollen (D-Md.) in the Senate and Cindy Axne (D-Iowa) in the House, would require companies to identify their foreign subsidiaries and provide, on a country-by-country basis, information on their profits, taxes, employees and tangible assets.

Companies don’t have to disclose that information now, and, rather than provide country-specific information on their taxes, they can prepare their financials using a global blended rate.

Critics call current disclosure requirements too lenient and say they encourage companies to shift their operations abroad to lower their taxes. 

“Some of the biggest corporations in America use accounting gimmicks to pretend their profits are earned in offshore tax havens and thereby avoid paying their fair share of taxes to the U.S.,” Amy Hanauer, executive director of the Institute on Taxation and Economic Policy, said in a statement. “This legislation takes a very reasonable step in allowing lawmakers and the public to know what these companies are up to.”

IRS data

Companies already disclose in their tax filings much of the information the legislation is seeking, but the IRS doesn’t make that information public. 

In a summary provided by Van Hollen, the legislation would enable the information to be made public separate from the IRS, which would help give the public a picture of how international tax laws are working and where corporations are locating their business activities.

“Americans have a right to know when corporations are using incentives in our tax system to ship jobs overseas or abuse offshore tax havens,” Van Hollen said. “This legislation will shine a light on the games big corporations play to move profits overseas and avoid paying taxes to support public investments here at home.” 

The bill is intended to work seamlessly with the tax changes the Biden Administration is seeking. Among other things, the Biden plan includes an increase in the global intangible low-taxed income (GILTI) tax and elimination of the tax rate on foreign-derived intangible income (FDII). 

The goal of the two tax changes is to reduce the incentives for companies to shift operations and profits to low-tax countries by creating a country-by-country minimum tax.

It also fits with the administration’s support of a global minimum tax, to halt what critics call a race to the bottom as countries use low tax rates to compete for multinational operations.

So far the House and Senate bills, which were introduced in the last Congress but didn’t pass, haven’t attracted bipartisan support.