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EU agreement on country-by-country reporting for extractive industries

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The Irish presidency of the European Union has secured agreement on a new accounting directive to ‘cut red tape’ for SMEs and increase the transparency of payments made to governments by European companies involved in the extractive and forestry industries.

The agreement shows ‘how EU legislation can be a catalyst for change in developing countries’, said Michel Barnier, European commissioner for internal market and services.

The EC published in October 2011 proposals for revision of the accounting and transparency directives, noting that ‘mining and forestry companies would have to be more open about taxes, royalties and bonuses paid worldwide’.

Listed and large non-listed companies with activities in the extractive industries (oil, gas and mining) and loggers of primary forests would be required to disclose payments to governments on a country and project basis. The proposals were based on guidelines developed by the Extractive Industry Transparency Initiative.

Deloitte noted today that detailed information on the content of the new directive is not yet available.

Country-by-country reports will ‘assist the citizens of resource-rich countries in holding their governments to account for the use made of payments received from EU undertakings active in the extractive industries or in the exploitation of primary forests’, the Irish presidency announced on Tuesday.

The agreement between the European Commission, the European Council and the European Parliament will require final approval by the permanent representatives committee of the Council.

Barnier said on Tuesday: ‘Local communities in resource-rich countries will finally be better informed about what their governments are being paid by multinationals for exploiting oil and gas fields, mineral deposits and forests. The agreement will bring in a new era of transparency to an industry which is far too often shrouded in secrecy and help fight tax evasion and corruption as well as create the framework so both companies and governments can be held to account on the use of revenues from natural resources.’

The Financial Times reported that the disclosure rules would broadly match rules adopted by the US and would ‘leave little flexibility for companies’.

It added: ‘Companies privately see the transparency regime with varying degrees of dismay. The American Petroleum Institute is suing the US Securities and Exchange Commission over its implementation of similar rules, suggesting they are akin to “giving [out] the formula for Coca-Cola”.’

But Global Witness had described this week’s announcement as a ‘watershed moment’.

Catherine Olier, Oxfam’s EU development expert, said: ‘It’s excellent news that the EU is moving towards a law that will help ordinary people harness the natural resource wealth of their countries to be lifted out of poverty. But EU politicians today could have taken a bolder stance against tax evasion and corruption by including other sectors such as telecommunications or construction. Strikingly, poor countries lose more to tax dodging than they receive in aid each year.’