EU moves again on financial disclosure of extractives industries

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Amid a crackdown on tax avoidance, the European Union has backed new rules requiring the extractive industries to disclose payments made to governments on a country-by-country basis.

Ministers backed the rules in Brussels this week following opposition from EU countries with strong interests in the oil and gas sector, such as the United Kingdom, EURACTIV can reveal. The Netherlands was also blocking the deal before a sudden U-turn in which it expressed full support.

The revision of the Transparency Directive will require European extractive and logging companies to present a more detailed picture of the payments they make to governments on an individual country basis rather than a global total. This goes beyond a recent, much-trumpeted revision of the Accounting Directive in that it requires all EU listed companies to disclose their payments.

The European Parliament’s legal affairs committee approved the amendments yesterday (30 May) putting the EU legislative on course for a final vote on 12 June.

The lawmaker who drafted the rules, British MEP Arlene McCarthy, said: “This is a major step forward in the global fight against corruption. The new rules will ensure that citizens of resource rich countries can hold their governments to account for the exploitation of their natural resources.”

Loopholes

In its final draft, the Parliament rejected a proposal by the European Commission to include criminal exemptions, fearing companies could use them as a loop-hole.

Large oil and gas companies had lobbied the EU legislature claiming that laws in certain countries they operate in may prevent them from disclosing all of their tax payments, putting the lives of their workers at risk. But none of the companies were able to supply any evidence to support the claim, an EU source said.

Parliamentarians feared that in the time it took for the EU to ratify the new rules, multinationals would have lobbied governments to change their taxation disclosure laws, exploiting the criminal exemptions clause.

Tax Zeitgeist

The tough new rules on extractives followed a deal cut with centre-right and right-wing groups in the European Parliament who, along with a block of countries in the Council of Ministers, opposed extending the laws to other sectors.

The revision of the Transparency Directive comes amid accusations of tax avoidance directed towards some of the world’s largest multinationals, such as Google, Apple and Starbucks.

The commissioner for the EU's internal market, Michel Barnier, told the Financial Times: “It is necessary that large companies such as Apple, Google, Amazon that we have recently spoken a lot about – but not only these – are obliged to report how much tax they pay to whom and where.”

Apple does not disclose the income tax it pays in various countries where it operates.

The rules are also expected to put pressure on multinationals using countries with low corporate tax such as Ireland or Luxembourg as bases for their European operations.

The amendments were agreed under the Irish EU presidency, with the minister of finance, Michael Noonan, saying: “These new rules will encourage European companies to be more open about what they are paying to governments around the world. I believe that more transparent and more socially responsible companies will be better able to contribute to job creation and economic growth in Europe.”

Commissioner for the Internal Market Michel Barnier said: "I welcome this significant new advance in our efforts to make European companies more responsible and transparent ... This agreement ensures that the disclosure requirements for the extractive and forestry industries as recently agreed in the Accounting Directive apply to all companies of those sectors that are listed in the EU."

The EU has been under pressure to approve transparency laws covering foreign mining and petroleum operations of EU-registered companies following the adoption of similar rules in Washington.

This agreement ensures that the disclosure requirements for the extractive and logging industries as recently agreed in the Accounting Directive apply to all companies of those sectors that are listed in the EU.

The Dodd-Frank Wall Street Reform and Consumer Protection Act became law in the United States in 2010. It included two provisions that affect corporations involved in mining and petroleum drilling overseas, which regulators adopted on 22 August 2012:

  • Section 1502 supports international efforts to prevent guerrilla fighters or renegade state forces in Great Lakes region of Africa from profiting off the sale of mined raw materials.
  • Section 1504 – known as the Cardin-Lugar rule – imposes disclosure standards on US-registered companies engaged in overseas mining and petroleum operations.
  • 12 June: Final vote on the Transparency Directive in the European Parliament

European Commission

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