The EU made an interesting rule change with an eye to giving a country-by-country income statement of sorts-
Companies active in the EU with a revenue of more than €750 million will need to publish seven pieces of information in every country in which they operate: 1) the nature of their activities; 2) the number of their employees; 3) their total net turnover; 4) the profit made before tax; 5) the amount of income tax due in each country; 6) the one actually paid; and 7) the accumulated earnings, which is the net profit of the company after distributions to the stakeholders.
Most of that would be common knowledge for the firm as a whole, but getting a country-by-country breakdown would be informative and not overly burdensome for firms (they should have the information already for in-house use, especially if they're billion-dollar or close-to-it firms)...but have a few flaws that makes things misleading.
In a political environment that is on edge over tax-avoidance and evasion after the "Panama Papers" pointed out quite a bit of both, a lot of hay will be made over the difference between bullet points five and six. However, that difference is often due to a difference between financial accounting rules and tax accounting rules.
For instance, if a car is expected to last ten years, you'll depreciate it 100%/10 years= 10% a year for the numbers that go on the annual report and the 10-K form sent to the SEC.
However, the MACRS system in US tax law would have you writing it off in five years and somewhat front-load even that, so that you write off 20% in the first year and 32% in the second. That will create 10% extra depreciation in year 1 and 22% extra in year 2, which will lower taxable income and lower your tax bill. The sped-up write-offs were put in place in the 1980s in order to encourage investment.
That will generate a deferred income tax asset on the balance sheet and a gap between taxes that "should have been owed" if we used the "straight-line" 10% a year figure versus the actual tax bill figured with the kicked-up depreciation. Nothing fishy there other than the US government giving business a head start on writing off new plant and equipment.
Also, using past losses to offset part or all of current profits can help create that difference as well.
That means that a lot of those differentials are merely using tax law, often in ways blessed by the government. That fact will likely get lost
Recent Comments