Out-Law News 2 min. read
26 Mar 2014, 5:01 pm
Corporate tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, said that voluntary disclosures by Tullow Oil showed that compliance with the requirements of the EU's Accounting and Transparency Directives would not be as impractical for firms as feared. The changes, which include new disclosure requirements for firms operating in the extractive industries and logging, are due to come into force in July 2015.
"Tullow has been praised by campaigning organisations for its decision to go beyond current legal requirements and publish its global tax payments on a project-by-project basis," said Self.
"The drive towards increased transparency is a key topic for the OECD, which has recently published its draft on country-by-country reporting (21-page / 273KB PDF). Many companies are concerned about the practicality of complying with such requirements, but Tullow has now demonstrated that it is not impossible to do," she said.
In its report, Tullow listed payments both per project and aggregated by country. It included details of income taxes, royalties, dividends, bonus payments, licence fees, VAT, withholding taxes, 'production entitlements' and PAYE and national insurance for employees. Most of the country's extraction activities take place in Africa and countries receiving payments included Ghana, Equatorial Guinea, Gabon, Uganda, Kenya, Cote d'Ivoire, Mauritania, Ethiopia, Mozambique and Suriname. It also made payments in the UK, the Netherlands and Ireland.
"The taxes we pay to governments are the most significant economic contribution we make to our countries of operation," the firm said in its report.
"Part of our commitment to creating shared prosperity is to ensure that there is transparent disclosure of payments to governments in the countries in which we operate ... This year, we have aligned our disclosure with the EU Directive through three key changes: reporting our tax disclosure on a cash basis; disclosing payments where they have arisen; and disclosing category level payments on production entitlements, income taxes and royalties, among others. For a fuller understanding of the payments we make to the governments of our host countries, we have provided voluntary disclosure on VAT, withholding tax, PAYE and other taxes," it said.
Once the EU directives are in force, large extractive and logging companies will have to report the payments they make to governments on a country-by-country basis, or on a project basis where payments have been attributed to specific projects. The reporting requirements will cover production entitlements; taxes on income, production or profits; royalties and dividends; signature, discovery and production bonuses; and license, rental and entry fees and related payments or concessions.
The new directives were drafted in response to international developments, in particular the inclusion of a requirement to report payments to governments contained in the Dodd Frank Act in the US. However, this provision is not yet in force as it requires the publication of final implementing rules by the US Securities Exchange Commission (SEC). Although these rules were adopted in September 2012, a US court overturned these for being potentially anti-competitive.