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.