The European Parliament Legal Affairs Committee ignored industry advice and on September 18th supported project-by-project reporting of payments to governments by companies.

The proposal will now be considered by the Council with a view to incorporation into legally binding Directives in early 2013.

The proposed amendments to the European Accounting and Transparency Directives will apply to any EU company or foreign company subject to the directives.

All payments over €80,000 will be required to be disclosed.

The changes are similar to the US Dodd-Frank requirements just introduced in the US, but extend to state-owned enterprises.

What kind of companies, activities and payments are recovered?

Company coverage:

  • All EU companies and companies subject to EU Accounting and Transparency Directives.
  • Covers oil, gas, mining, forestry, construction, telecommunications and banking sectors.
  • Applies to listed and large non-listed companies.
  • Large companies are those that exceed two of the following three criteria: annual turnover of €40 million; total assets €20 million and employees 250.

Payments covered:

  • Requires companies to disclose the basic payment types covered under the Extractive Industries Transparency Initiative (EITI), but leaves room for reporting of additional benefit streams.
  • The following types of payments will need to be reported: taxes on profits; production entitlements; royalties; dividends; signature; discovery and production bonuses; license fees, rental fees, entry fees and other considerations for licenses and or concessions; other direct benefits to the government concerned.

At what level are payments disclosed, and to what level(s) of government:

Level of payment disclosed required:

  • Companies must disclose payments in each country where they operate and for each project.
  • A project is defined as equivalent to a specific operational reporting unit at the lowest level within the company at which regular internal management reports are prepared to monitor its business.

Level(s) of government covered:

  • Payments must be disclosed when made to any national, regional or local authority of a Member State or of a third country.

What values of payments must be reported, and how is this threshold determined?

  • Companies must disclose payments where that amount is material to the recipient government.
  • Companies are required to disclose all financial transactions above €80,000 threshold.
  • The payment information will be available to the public in recipient countries, not just to investors.

Exemptions: Should all relevant companies report?

  • No exemption is available for companies in cases, even where such disclosures are prohibited by host countries.

Sanctions

Sanctions for non-compliance of the rules would entail a fine of up to 10 % of annual turnover for firms or 5 million for individual businessmen.