Chapter 10 of the new EU Accounting Directive1 requires large companies and public interest entities active in the extractive and logging of primary forest industries to report on the payments they make to governments worldwide on a country and project basis. The intention is to give citizens of resource-rich countries the information they need to hold governments to account. This briefing sets out an overview of the relevant UK legislation, including to whom it applies, what the requirements are and practical implications for consideration by those who will be impacted by the legislation.

Development of the legislation

The Reports on Payments to Governments Regulations 2014 (Regulations) were published on December 8, 2014 and came into force in the UK on December 1, 2014. This follows the UK Government’s commitment in 2013, at the G8 Summit in Northern Ireland, to implement the EU requirements ahead of the July 2015 deadline for implementing the EU Accounting Directive imposed on EU Member States as part of its desire to promote transparency in corporate reporting.

Who must disclose?

The Regulations apply to UK registered “large undertakings” or “public interest entities” which are involved in mining or quarrying for products such as oil, minerals and gas or the logging of primary forests.

“Large undertakings” are those which meet at least two of the three criteria specified below:

  • its balance sheet total on its balance sheet date exceeds £18 million;2
  • its net turnover on its balance sheet date exceeds £36 million;
  • the average number of employees during the financial year to which the balance sheet relates exceeds 250.

“Public interest entities” include, in broad terms, undertakings whose transferable securities are admitted to a regulated market (so the Official List in the UK but not AIM), certain credit institutions and certain insurance institutions.

What must be disclosed?

Companies to which the Regulations apply will need to prepare a report each year, with the first report being prepared for the first financial year beginning on or after January 1, 2015. This means reports will first be made available in 2016 as a company with a December 31 year-end will have to produce its first report for the period January 1 - December 31, 2015. Companies will have to deliver their report to the Registrar of Companies at Companies House within 11 months of their financial year end.

While the content of the report is prescribed by the Regulations, the Government is working with Companies House and other stakeholders to determine a suitable format for the report. Best practice industry guidance to support this and encourage consistency is also in the process of being produced (see Draft industry guidance below). For each financial year the report will need to specify:

  • the government (and country) to which each payment has been made;
  • the total amount of payments made to each government;
  • the total amount per type of payment made to each government (e.g. taxes, royalty payments, dividends, licence fees, rental fees etc); and
  • where payments have been attributed to a specific project, the total amount per type of payment made for each such project and the total amount of payments for each such project will need to be stated.

Payments, activities and projects cannot be artificially split or aggregated to avoid the application of the Regulations and payments in kind must also be reported. So, if a royalty liability was satisfied by the delivery of 1,000 barrels of oil, the report would need to provide both the monetary value of the oil and the volume delivered.

Exemptions and impact of other reporting regimes


Payments below a threshold of £86,000 need not be reported if the payment relates to a single obligation and is not part of a series of related payments. So, for example, a single payment of £75,000 for a licence in a year would not have to be reported but a series of four quarterly payments of £25,000 for a single licence would need to be reported in aggregate.


Subsidiaries are exempt from preparing a report if the payments to governments are included in the consolidated report drawn up by a parent undertaking either in accordance with the Regulations or in accordance with provisions implementing Chapter 10 of the EU Accounting Directive in any other EU Member State.

Given that the UK is implementing the requirements ahead of other EU Member States, the Government has put in place transitional provisions exempting UK subsidiaries of companies registered in other EU Member States from reporting in the UK for one year. After that UK subsidiaries will only be exempt from reporting if relevant payments are covered by the consolidated report of a parent undertaking as described above.

How will the Regulations be enforced?

The Regulations introduce a penalty regime similar to that for breaches of offences in the UK Companies Act 2006. The aim is to seek compliance so if Companies House becomes aware of a missing report or an incomplete report, companies will have 28 days to comply or be asked to confirm why they have not produced a report. Failure to comply with a request for information may lead to a fine and if a company fails to complete a report both the company and the directors can be subject to a criminal conviction and either a fine or imprisonment. The same penalty will apply to directors if they submit a statement in a report that is misleading, false or deceptive.

Draft industry guidance

On November 25, 2014 the Department for Business, Innovation & Skills (BIS) published draft guidance prepared by the International Association of Oil and Gas Producers and the International Council on Mining and Metals in relation to the Regulations for consultation. The draft guidance seeks to assist entities subject to the reporting requirements under the Regulations and to promote consistency in the reporting of payment information. It has been developed taking account of, among other things, the recitals in Chapter 10 of the EU Accounting Directive and relevant sections of the Extractive Industries Transparency Initiative standards (see further below), as well as guidance that has been published relating to equivalent regimes. The draft guidance comments that reporting entities may find these sources useful when interpreting the Regulations but that they will have to make their own determination on which payments need to be included in their reports.

Areas covered by the draft guidance include the types of entities that must prepare and deliver a report, business activities within the scope of the Regulations, the types of payment that have to be included in the report, where the responsibility lies for including information in relation to payments in a report in situations where a payment is made on behalf of multiple parties, the government entities that receive payments that must be included in the report, how payments should be attributed to projects and when and how reports should be delivered.

So far as the types of payments that should be included in reports are concerned, the draft guidance suggests the following approaches:

  • in cases of doubt, or for practical reasons, individual companies may choose to include information in the report that might arguably be out of scope (e.g. where there is doubt over the classification of a type of tax). However, companies are encouraged to avoid over-reporting, e.g. by including sales taxes that are explicitly stated to be out of scope. Other company reporting mechanisms, for example sustainability reports, can be used, if desired, to present a fuller picture of the reporting entity’s economic contribution;
  • companies are encouraged to avoid duplicative reporting of the same payment data by different companies - for example, in joint ventures payments made by the operator on behalf of the whole venture should be reported only by the operator, as the operator is the entity that actually makes the payment to the government; and
  • companies are encouraged to consider using the notes sections contained in the reporting form to provide explanatory notes to help users understand their reports.

The deadline for comments on the draft guidance is December 17, 2014. BIS will review the draft guidance to consider whether it is compliant with the Regulations and, following the consultation, BIS and industry will discuss amendments to the draft guidance.

Other considerations

Equivalence procedures

The European Commission has also been consulting on the equivalence procedure in the EU Accounting Directive which enables EU companies to choose whether to prepare their reports in compliance with the laws of an EU Member State or in accordance with equivalent third country reporting requirements. The focus of the consultation has been on the criteria a third country must meet to be deemed “equivalent” and a decision will then be made as to which third countries meet those criteria and are recognised as equivalent in the EU.

Impact on issuers with a premium listing whose home state is the UK

The Financial Conduct Authority in the UK has been looking at revisions to its Disclosure and Transparency Rules (DTRs) since, as well as the requirements in the EU Accounting Directive, the EU Transparency Directive has been amended to introduce similar country by country reporting requirements for listed companies in the extractive or logging of primary forest industries.

The FCA consulted in August 2014 on possible DTR changes and has not reported back on the consultation yet but the changes to the DTRs, including a proposed new DTR4.3A, will have an impact not just on UK registered listed companies, but on those companies who are registered outside the UK but are subject to the DTRs as the UK is their home state for the purposes of the EU Transparency Directive.

The DTRs will also require companies that are active in the extractive or logging of primary forest industries to prepare a report each year on their payments to governments. That report can follow the format in the Regulations described above. However, the DTRs will require that report to be published within 6 months of the financial year end rather than the 11 months permitted by the Regulations. This means that UK listed companies will have to make two separate filings of their report in order to meet their obligations under both the EU Accounting Directive and the EU Transparency Directive.

Extractive Industries Transparency Initiative

In October 2014, the Government announced that the UK had been admitted as a candidate country for the Extractive Industries Transparency Initiative (EITI). Governments that voluntarily sign up to the EITI choose to implement the EITI’s standards. In summary, this means that extractive companies operating in the UK and paying taxes in the UK will need to report on their payments to the Government which in turn will report on the payments it receives. These reports will be made to an Independent Administrator who will reconcile the information it receives from companies and from the tax authorities on behalf of the Government.

The EITI will require companies to supply information about payments they have made in the calendar year 2014. The UK has to submit its first report by April 2016 and so UK extractive companies are likely to have to submit information on the payments they have made to the Government in 2014 by mid-2015.

What steps should companies take now?

  • Companies with multiple listings will need to assess under which regime they need to report.
  • Companies should review the draft industry guidance and respond to the BIS consultation by December 17, 2014 if they have any comments on it.
  • Companies will need to prepare and adopt payment policies in this area.
  • Companies will have to ensure that certain employees or groups within their organisation are familiar with and understand the new legislative requirements so that they can ensure that the reports that they prepare meet all the requirements and are submitted within the necessary deadlines.
  • Processes and systems to track payments will need to be created and implemented and a reporting structure developed.
  • Companies ought to review their strategy for dealing with scrutiny from non-governmental organisations and investors with regard to the payments the company makes to governments.