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:
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.
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.