New tax transparency rules in the United States, European Union, and Australia are set to produce more public company tax disclosures in 2026, but the data may be difficult to compare and easy to misinterpret.
Large multinational companies are facing new requirements to disclose jurisdiction-level information on revenue, profit, taxes, and headcount. The European Union and Australia have moved beyond the confidential country-by-country reporting framework established by the OECD, requiring large multinationals to publish parts of this information publicly. Companies reporting under U.S. Generally Accepted Accounting Principles must also disclose certain jurisdictional tax information under recent Financial Accounting Standards Board changes.
The new disclosures may provide useful information, but they also raise problems around comparability, interpretation, and policy use. Low taxes reported in a specific jurisdiction may appear to suggest tax avoidance, but the numbers can be affected by investment activity, cyclical losses, audit settlements, refunds, or local tax rules.
Why the source of the data matters
The disclosures are largely based on financial accounting concepts, including profits, cash taxes paid, deferred taxes, and related items. These figures are normally prepared for shareholders and public financial statements.
They are not the same as taxable income. Taxable profit, as defined by national tax codes, is not included in these disclosures.
This distinction matters because financial or “book” income can differ significantly from taxable income. For example, a company may benefit from full expensing under a country’s tax code while accounting rules require straight-line depreciation. The result is that financial accounts and tax returns may show different figures even when both are prepared correctly.
Financial data is intended to inform shareholders under accounting standards. Tax returns are designed around tax law, revenue collection, compliance costs, administration, and economic incentives. Because the data is not built from taxable income, it has limited usefulness for tax policy analysis.
The specific disclosure regime also matters. Data reported under U.S. GAAP, EU public country-by-country rules, or Australian public reporting rules may not be directly comparable. A company reporting under both EU and Australian standards could show different revenue figures for the same jurisdiction because the rules are different.
One example is related-party revenue. Under the EU standard, reported revenues may be higher in jurisdictions where intra-company transactions are significant. A company with multiple entities in one jurisdiction may need to include internal revenues from transactions between its own entities, even though third-party revenue is what ultimately generates profit.
This can happen in distribution hubs where products move from a company’s own production facility to related entities that take the products to market.
Because of these differences, calculating statistics such as effective tax rates from the disclosed data can be misleading.
How tax authorities already use country-by-country data
Country-by-country reporting has been part of tax compliance for about a decade. Large multinationals have already been required in the United States and elsewhere to disclose information to tax authorities on revenues, profits, employees, assets, and both cash and accrued taxes.
That data has historically been reported confidentially under OECD standards. Tax authorities can use it as a risk-assessment tool, including to identify possible mismatches between profits, employees, and assets that may justify further review.
The new EU and Australian public reporting rules depart from that confidential approach.
The public disclosure of this data does not materially expand the enforcement tools available to tax authorities, because authorities have already had access to the information. The main change is public availability, which may increase debate but also create confusion if the data is treated as a direct measure of tax avoidance or tax policy outcomes.
What the data can and cannot show about tax policy
The disclosed data does not have a direct link to tax policy because taxable profit is absent. Two figures are likely to attract attention: cash taxes paid and accrued tax.
Cash taxes paid show the amount of tax a company pays in a single year. This number can be ambiguous. It may reflect tax on current-year profits, payments related to prior years after an audit settlement, or reductions due to refunds of previously paid tax.
Accrued tax reflects a tax liability the company expects to pay over time. Actual cash payments may be higher or lower than accrued tax, and accrued tax does not show when the tax will be paid.
Both cash and accrued taxes can be affected by timing issues. A single year may be distorted by audit settlements, refunds, or deferred tax liabilities linked to tax code provisions such as full expensing.
For that reason, one year of tax disclosures should not be used to draw strong conclusions about a company’s tax position.
Practical caveats
The new disclosures are likely to influence public discussion of multinational taxation, but the underlying data has important limits.
Key caveats include:
- Financial accounting income is not the same as taxable income.
- Taxable profit is not included in the disclosures.
- Different reporting regimes may produce different numbers for the same company and jurisdiction.
- Cash tax paid in one year may reflect prior-year audits, refunds, or timing effects.
- Accrued tax may not match future cash tax payments.
- A single year of data is not enough to judge whether a company is paying too much or too little tax.
Analysts, journalists, policymakers, and the public should treat the new disclosures cautiously. The data may provide more visibility into multinational operations, but it is poorly suited for drawing strong conclusions about tax avoidance, corporate behavior, or the effectiveness of tax policy.
Source article: taxfoundation.org
