Learn About Illicit Financial Flows
Key Terms

European Commission Proposal on Country-by-Country Reporting Imminent

August 31, 2011

By Alex Marriage

Alex Marriage is an Advocacy and Outreach Assistant at the European Network on Debt and Development (Eurodad) in Brussels.

Eurodad’s Alex Marriage Details How a Robust Country-by-Country Reporting Standard Should Look
European Commission

Sébastien Bertrand/Flickr

The European Commission will make a proposal for introducing country-by-country reporting (CBC) for extractives industries and possibly forestry companies at some point this autumn. This comes following an EU Council request earlier in 2011 that called upon

“the Commission to come forward with initiatives on the disclosure of financial information by companies working in the extractive industry, including the possible adoption of a country-by-country reporting requirement, International Financial Reporting Standards (IFRS) for the extractive industry, and the monitoring of third-country legislation.”

This will then be submitted to the European Parliament. The European Council will consider the changes if they pass through the parliament, so legislation might be passed, most probably next year. There has been a particular focus on extractives because of the prominence of concerns about energy security, environmental destruction, corruption, and the resource curse—recently exemplified by events in Libya. To address these problems, greater transparency is needed about resource concessions and the revenues they create.

Although requiring CBC disclosure in the extractive sector is a very welcome step, Eurodad and other CSOs are calling for it to be applied in all sectors, pointing out that this would vastly increase the impact of the legislation. Country-by-country reporting for all industries could help tackle the tax dodging that causes so much damage in Europe and—to an even greater extent—the global South.

Currently, CSOs are calling for precise reporting requirements with real teeth. In order to be most effective, CBC must require a comprehensive range of data, disaggregated by country, project and type of payment to governments. All payments above a certain threshold, ideally $1000, should be revealed as this would be enough to influence officials’ behaviour. To combat tax dodging, data should be included for all the following categories: profits, volumes of production, sales, intra-group trade and financing, assets and staffing information. Sufficiently detailed country-by-country reporting in all countries where a company has a trading presence would reveal where its real operations take place and where revenue is actually generated, making it harder to justify shifting of profits to tax havens. This would help tax authorities to identify high-risk taxpayers to investigate, to know what information to request from other countries and to recognize irregularities during transfer pricing audits.

The exact details of the applicability, format and dissemination of the reports are also crucial:

  • These rules should apply to all extractive companies and all countries;
  • All reports should follow a predetermined format rather than being left to a company’s discretion; and
  • Data should also be published online so it is as widely accessible as possible to allow civil society and the public to hold governments and companies to account.

There is also a business case for CBC, which would give investors more information, encourage competition, make national management more accountable and discourage conflict in resource rich areas by encouraging fair distribution of revenues and providing verification when this is taking place. Less conflict would mean greater security of supply and price stability. Equally, transparency would make it harder for officials to demand bribes. However, corporations are lobbying to weaken the terms of the proposal and the similar Dodd-Frank bill in the U.S.  This suggests that these companies have something to hide and will want these lobbying efforts to remain low key.

For a more detailed list of demands for country-by-country reporting standards see this Eurodad/Publish What You Pay Briefing.

Share

Disclaimer: Unless specifically stated to be the views of the Financial Transparency Coalition, the opinions expressed on this blog are solely the opinions of the individual blogger and are not necessarily those of the Financial Transparency Coalition.

Latest Press Releases

G20 Communiqué Acknowledges Broken Financial System, But Leaves Clear Solutions on the Table

Financial Transparency Coalition · November 16, 2014

BRISBANE—With the release of the Brisbane communiqué, G20 leaders have acknowledged the cracks in our financial system, yet they haven’t acted ...

This weekend, G20 leaders should roll up their sleeves and work on common sense measures to curb illicit cash

Financial Transparency Coalition · November 14, 2014

BRISBANE—While G20 leaders are poised to address many of the vehicles that are integral to allowing almost one trillion dollars to flow ...

Luxembourg Leaks Show that Corporate Secrecy is Alive and Well

Financial Transparency Coalition · November 6, 2014

WASHINGTON D.C. — Newly leaked documents detailed by the International ...