The EU has adopted new laws aimed at increasing the transparency of government income from the oil and gas industry, in a move poverty campaigner and U2 frontman Bono called a "game-changing breakthrough" on corruption in resource-rich developing countries.
Ministers, the European Commission and Parliament Tuesday night (9 April) ended negotiations on the Accounting Directive by agreeing on a compromise proposal, after fierce lobbying from industry and NGOs.
The deal requires European companies to report payments of more than €100,000 made to the government in the country they are operating in, including taxes levied on their income, production or profits, royalties, and license fees.
The EU executive will oblige companies to disclose the payments they make at project level as opposed to government level only, revealing the sources of taxable income from the extraction or logging industries.
Bono, the singer and co-founder of poverty campaign group One, said: “Europe’s leaders have stepped up and delivered a gamechanging breakthrough tonight. Transparency is one of the best vaccines against corruption, and now citizens the world over will know what their country’s resources are really worth."
The agreement will also cut red tape for small and medium-sized enterprises by simplifying accounting rules.
The deal goes beyond disclosure rules adopted by the United States in 2012 by including the logging industry along with mining and petroleum operations.
Michel Barnier, the European commissioner for the internal market, who oversaw the proposal, said: "The agreement will bring in a new era of transparency to an industry which is far too often shrouded in secrecy and help fight tax evasion and corruption as well as create the framework so both companies and governments can be held to account on the use of revenues from natural resources."
For Barnier, project-level disclosures will ensure that people living near extraction sites are aware of how much they government earns from the presence of foreign industry in their communities.
"Local communities in resource-rich countries will finally be better informed about what their governments are being paid by multinationals for exploiting oil and gas fields, mineral deposits and forests", he said in a statement.
This is particularly important in countries where tax evasion laws are not particularly strong. Analysts also hope the rules will pave the way for better rewards for local communities in the form of tax redistribution.
But without the disclosure of further information - such as turnover, profits, employee numbers and costs and assets - regulators may struggle to work out if companies are paying the full amount of tax they owe.
“Information on payments alone is not enough to show that companies pay their fair share of tax," Catherine Olier, an EU development analyst at the campaign group Oxfam, told EurActiv.
"This means that the information on payments can be used to hold the government accountable for the use of this income, but that neither governments nor companies can be held accountable for whether the correct amount was paid."
Ministers also agreed on a review clause to decide in 2015 whether to stretch the laws to include other industries, such as telecommunications and construction.
“This will be a springboard for similar disclosures," said Joe Williams from Publish What You Pay, a global campaign group focussing on the transparency of the oil and gas industry. "If it can be done with a dodgy industry like the extractives then it can be done with others. But extractives represent the greatest source of income for developing countries."
The move follows leaks showing that a number of politicians, tycoons and companies have used tax havens such as the British Virgins Islands to hide funds. It also comes against a background of European-level crackdowns on the transparency of the banking sector.
The European Commission estimates that the EU economy loses about €1 trillion from tax evasion by both private persons and companies.
British Business Minister Jo Swinson said: "The UK has pushed hard for Europe to agree rules that will set a new global standard for transparency, working tirelessly with industry, civil society and European governments to achieve robust proposals. It is fantastic that the Commission, Council and European Parliament have reached agreement on strong extractive reporting requirements that will ensure that those in the gas, oil and mining industry report the payments they make to governments in all the countries in which they operate.
"This is a priority for our G8 Presidency and it's great that the EU is leading by example. We have succeeded in making sure that citizens can get access to the detailed information they need to be able to hold their governments to account."
"It will better hold government to account, with some impact on rooting out tax evasion”, said Joe Williams from Publish What You Pay, a global campaign group focussing on the transparency of the oil and gas industry.
Catherine Olier, an EU development analyst at the campaign group Oxfam, said: “[The rules] mean citizens can know what companies paid for each project even in specific areas, so how much communities can get back."
Bono said: "I’m delighted for the activists that have campaigned so hard for this to happen and applaud the bravery of politicians who stood up to fierce lobbying and got the deal done”
Eloise Todd, the Brussels director of ONE, said: “Today’s agreement is a major step forward in the fight against corruption. This law will shine a light on the often murky world of oil, gas and mining deals in Africa, helping ordinary people see where the money paid for their countries’ natural resources is really going and potentially lifting millions out of extreme poverty."
"This legislation will help create a new global benchmark for transparency in the natural resource sector”, said Jana Mittermaier, director of Transparency International's EU office. “With this information, citizens of mineral-rich countries can ask hard questions of both companies and governments about the deals that they make. The secrecy that surrounds these deals has been fertile ground for the corruption that has too often blighted the development of natural resources.
"EU leaders now need to persuade their counterparts at the G8 and G20 to enact similar legislation to ensure that all citizens can benefit from these reforms and that there is a level playing field for extractive companies.”
British Labour MEP Arlene McCarthy, the European Parliament's rapporteur on the transparency law and negotiator on the agreement, said: "Following months of tough, drawn-out negotiations, there is now a deal on the table. We have stood up to attempts to water down these proposals from the member states demanding exemptions and loopholes which would have defeated the purpose of the rules. The aim is to give communities in resource-rich countries the necessary tools to hold their governments to account for payments they receive from multinational companies.
"In 2008, exports of oil, gas and minerals from Africa were worth roughly nine times the value of international aid to the continent ($393 billion vs $44 billion), yet many of these countries remain trapped in poverty. Developing countries around the world are being robbed of the chance to earn vital revenue from oil, gas and other mining resources. "The new law delivers more transparency than any EU government was prepared to consider. This new law is a now a victory for transparency, for those who invest in these companies and most importantly for the developing world", she said.
Richard Martin, head of financial reporting at the Association of Chartered Certified Accountants (ACCA) said: "The Irish Presidency’s compromise text as it concerns small companies reinstates some of the most important disclosures which were at risk – post balance sheet events, related party transactions and the movements on fixed assets for example. Without these, some small company accounts might be misleading. However it is less satisfactory that these will be member state options.
“Proportionate and transparent rules on accounting and disclosure have their own intrinsic merits in terms of encouraging financial discipline within companies and providing business-useful information to third parties. Where the costs of mandating rules on these matters are found to outweigh their direct benefits, there is still a need to safeguard the interests of stakeholders in other ways."
Øygunn Sundsbø Brynildsen, senior policy officer at Eurodad, the European Network on Debt and Development, said: “Despite today’s promising progress, there is still a long way to go to have EU legislation that properly fights tax dodging. While it is very important to know how much companies pay to governments, this figure alone does not give a clear picture of whether they pay their fair share of taxes. Multinationals will continue plundering developing countries until they are obliged to report information such as sales volumes, assets, staffing and profits. The currently negotiated EU banking sector reform is an example to follow in this regard.”
“The priorities of the Irish Presidency are stability, jobs and growth. At the heart of this Directive is the drive to cut red tape and reduce the administrative burden on SMEs. That is why this agreement is so important. The more we can reduce red tape, the more we free up business to grow and create jobs", said the Irish minister for jobs, enterprise and innovation, Richard Bruton.
"This is a breakthrough decision ending secrecy in the oil, gas and mining industry,” said Darek Urbaniak, extractive industries campaigner at Friends of the Earth Europe. “We applaud the EU for choosing transparency and the rule of law over corruption and secrecy. People from numerous developing countries especially in sub-Saharan Africa will now be able to see how much money their governments receive from the extractive industries for their natural resources and to monitor how this money is used.”
- 2015: European Commission to review legislation to decide whether to extend the laws to other sectors