The Financial Times ran a piece on Monday noting the the Securities and Exchange Commission’s Division of Corporation Finance has been increasingly focusing on disclosure regarding the tax implications of overseas earnings and offshore cash holdings in accounting and regulatory reviews of company filings.
Below are some of the recurring comments that the Commission has been issuing*:
- Please disclose the amount of cash, cash equivalents and investments held outside the U.S. Please also describe any potential income tax consequences or other limitations that may impact your ability to repatriate cash, cash equivalents and investments held outside of the U.S.
- Please tell us what consideration you gave to providing a discussion of the need to repatriate undistributed earnings of foreign subsidiaries and the associated potential tax impact.
- Please tell us how you considered providing disclosures that explain how having earnings in countries where you have different statutory tax rates impacts your effective income tax rates and obligations. In this regard, you should consider explaining the relationship between the foreign and domestic effective tax rates in greater detail as it appears as though separately discussing the foreign effective income tax rates may be important information necessary to understanding your results of operations. To the extent that certain countries have had a more significant impact on your effective tax rate, then tell us how you considered disclosing this information and including a discussion regarding how potential changes in such countries’ operations may impact your results of operations.
Most of the above also refer back to Item 303(a)(1) of Regulation S-K, addressing liquidity in MD&A disclosure, and Sections III.B and IV of Interpretive Release 33-8350, addressing the Commission’s guidance on MD&A content and focus, and on liquidity and capital resources disclosure. Both of which you may want to revisit as we approach the quarter’s end.
*Remember, comment letters are released no earlier than 20 business days after the Commission has completed its review.