Publish What You Pay - Policy Discussion Paper

Mandatory Disclosure of Payments to Government in Extractive Industries





1.      Overview


Many of the world's poorest nations are endowed with minerals and resources of significant market value that are being developed by multinational corporations and governments. 

Despite many years of extraction of these resources the populations of many of these countries are some of the poorest people in the world.

In our region many of our neighbours including Timor-Leste, Papua New Guinea, Solomon Islands and Nauru have multi-billion dollar resources projects that are operated by foreign multinational corporations.  Yet these nations are failing to meet some of the millennium development goals and economic growth is inequitable.

The extraction and development of these resources offers an opportunity for developing nation governments to grow national income and improve living standards for citizens.

However national incomes in developing nations are being diminished by multinational profit shifting,tax avoidance and corruption that is robbing populations of a better quality of  life.

In response to this an international network of 700 civil society organisations has been campaigning to improve transparency and accountability of payments to governments by encouraging large companies to publish what they pay to government.  It has been widely recognised by many international bodies including the OECD and the G20 that greater transparency and accountability of payments to governments will boost growth and the equity of growth throughout the world.

Labor is seeking your views regarding the matters raised in this discussion paper and the introduction of a mandatory disclosure regime for extractive industries corporations in Austral ia.

Send us your views to  by 1 July 2015.


 2.        What is Publish What You Pay?


Publish What You Pay (PWYP) is an international network of civil society organisations, governments and corporations working to ensure greater transparency and accountability in extractive industries to ensure mining,oil and gas revenues are used for economic development and poverty reduction in resource rich countries.

PWYP is campaigning for a global standard requiring large listed and unlisted corporations to disclose payments to governments for mining,oil and gas projects.


3.        The Global Tax Transparency Push


 The Extractive Industries Transparency  Initiative

The Extractive Industries Transparency Initiative (EITI) is a voluntary initiative which requires participating governments to publish what they receive from extractive companies and those companies to publish what they pay to governments. This largely includes taxes, royalties and other statutory payments.

The EITI Standard is implemented in 48 countries with 32 currently classified as compliant . It consists of a set of requirements that governments and companies have to adhere to in order to become recognised as 'EITI Compliant'.

Australia is one of the longest serving and largest donors to EITI. In 2011 the Australian Government announced it would pilot the EITI. A multi-stakeholder group consisting of industry, civil society and government was established to guide and deliver the pilot. The multi-stakeholder group is due to deliver its report to the Australian Government soon.


Base Erosion and Profit Shifting 

The OECD Base Erosion and Profit Shifting (BEPS) Action Plan documents actions that governments have committed to in an effort to prevent multinational companies from reducing their fair share of taxation cost. The plan includes a strong recommended action relating to Transfer Pricing Documentation and Country-by-Country Reporting by multinational companies.

This action would require annual reporting for each tax jurisdiction in which they do business specifying the amount of revenue,profit before income tax and income tax paid, total employment, capital,retained earnings and tangible assets.

The official Communique from the meeting of G20 Finance Ministers and Central Bank Governors held in Cairns in September 2014 noted the strong commitment to a global response to cross-border tax avoidance and evasion so that the tax system supports growth­ enhancing fiscal strategies and economic resilience.

The G20 Finance Ministers endorsed the finalised global Common Reporting Standard for automatic exchange of tax information on a reciprocal basis which will provide a step change in the ability to tackle and deter cross-border tax evasion. Nations will begin

exchanging information automatically between each other and with other countries by 2017 or end-2018,subject to the completion of necessary legislative procedures.

The communique supported further coordination and collaboration by our tax authorities on their compliance activities on entities and individuals involved in cross-border tax arrangements,and noted the importance of continuing to take practical steps to assist

developing countries preserve and grow their revenue bases and stand ready to help those that wish to participate in automatic information exchange.

PWYP is aimed at complementing and strengthening the Extractive Industries Transparency Initiative and the OECD's Base Erosion and Profit Shifting Action Plan.


4.         Countries which have adopted a mandatory Publish What You Pay regime


In recent years Europe, the United States of America and Canada have legislated mandatory reporting of payments to governments by large extractive corporations listed on their stock exchanges.Together the US and EU laws will cover about 65% of the value of the global extractive  industries  market,and over  3,000 companies.2


Chapter 10 European Union Accounting Directive

On 23 June 2013 the European Union adopted its Accounting Directive.

Chapter 10 of the Directive obliges member states to require large undertakings and all public-interest entities active in the extractive industry or the logging of primary forests to prepare and make public a report on payments made to governments on an annual basis.

The Accounting Directive requires all EU member states to implement the Directive by July 2015.


The United Kingdom Legislation

In December 2014 the UK Parliament implemented the EU Accounting Directive through the Reports on Payments to Governments Regulations 2014.

The UK law requires large and publicly listed oil,gas,mining and logging companies registered (i.e. incorporated) in the UK to annually disclose the payments they make to governments on a country-by-country and project-by-project basis. A company is defined to be "large" if at its balance sheet date, it fulfills two out of the following three criteria:

  • its balance sheet total exceeds £17.8m;
  • its net turnover exceeds £35.6m; or
  • its average number of employees during the financial year to which the balance sheet relates exceeds 250.

Such companies are required to disclose production entitlements,taxes, royalties, dividends, bonuses and payments for infrastructure improvements.

The threshold value of payments to be disclosed is GBP 86,000.


The United States Dodd-Frank Act

Section 1504 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act requires all oil,gas, and mining companies listed on US stock exchanges to publish what they pay to governments for the commercial development of natural resources in the countries in which they operate.

The Securities Exchange Commission (SEC) is currently in the process of redrafting regulations to give effect to section 1504 of Dodd-Frank after a legal challenge. The SEC has publicly pledged to release a proposed rule by March 2015.


The Canadian Extractive Transparency Measures Act 

The Canadian law requires publicly traded and large private oil,gas, and mining companies publicly disclose payments to all governments.

Unlike the EU and UK regulations, Canada's legislation does not stipulate that payments be reported on a country-by-country and project-by-project basis. Also, in contrast to the EU,it allows the responsible Minister to create a legally enforceable guidance document which will govern the reporting framework. The legislation also allows for the creation of reporting exemptions through the creation of further regulation.

Natural Resources Canada (the responsible government department) has stated that it is the federal government's intention that Canadian extractive companies will be required to publicly report payments on a project-by-project basis. The legislation will affect public and 


private, medium and large companies operating in Canada that meet or exceed two of the following three thresholds:

  • $20 million in assets;
  • $40 million in revenue; or
  • 250 employees.

The companies caught by this threshold are required to disclose taxes,other than consumption and personal income taxes, production entitlements, royalties, dividends, bonuses and payments for infrastructure improvements .

The threshold for the value of payments to be disclosed is $100,000. Annual reports must be available to the public.6

The Hong Kong Stock Exchange

Since 2010 the Hong Kong Stock Exchange has required prospective mining and oil and gas companies to disclose payments to governments in their listing applications.


5.        Australian Companies already subject to Mandatory Disclosure Requirements


A number of large Australian resources companies will be subject to mandatory disclosure obligations as a result of their listing on EU,US or Canadian Stock Exchanges.

The Publish What You Pay campaign believes based on ASX market capitalisation that 16 Australian companies that are co-listed on the EU,US and/ or Canadian Stock Exchanges are now required to disclose their payments to governments as part of their annual reporting requirements in those jurisdictions. 


6.        The Benefits and Costs of a Mandatory Publish What You Pay Regime in Australia


The Benefits

Non-renewable natural resources are often among the greatest source of wealth in resource rich countries. Good management of the revenues generated by their exploration, production and sale is often essential for economic development in these nations.

Unfortunately in some countries these payments to governments have not always been expended for the public good. Secrecy regarding the flow of funds from extractive industries to governments has allowed misuse of revenues and corrupt behaviour. This can create mistrust between local communities, their governments and companies sometimes leading to delays,conflict and social and political instability.

Improved disclosure of the value and nature of payments to governments by extractive industries companies will assist efforts to fight corruption by government officials and contractors in resource rich developing nations. More information of this nature will assist citizens and civil society groups to hold their governments to account regarding public finances and national incomes and expenditure. Over time it is expected this improved transparency will result in more equitable growth in countries concerned and ultimately higher living standards.

The benefits of revenue transparency have been demonstrated in Timor-Leste where extractive resource revenues have been directed to a sovereign wealth fund invested in building local infrastructure and improved development outcomes.

A mandatory reporting regime for extractive industries will increase the availability of verifiable disaggregated information from company financial reports regarding payments made to governments.  This is vital information in building public accountability and trust in governments and companies.

Improved payment disclosure will also increase investor confidence and market stability by mitigating the financial and political risks associated with global extractive industries investment. Investors will be much better informed if ASX listed extractive industries companies are required to disclose their payments to governments where they operate.

Investors will be able to assess and account for risks, make comparisons and evaluations to improve their investment decision making in relation to such companies.

Better financial information will lead to improved governance, more stable operating environments and safer investments.

Greater revenue transparency can also improve profitability of investments by reducing the mismanagement of extractive resource revenues. This will reduce uncertainty in global mineral supply chains and create more stability in the global extractive investment market.

Companies which publicly disclose their payments to governments can also credibly communicate to local communities their financial contribution to local and national economies. This will allow them to better explain how tax and other payments to governments have been utilised to build local infrastructure.

Greater transparency in accounting for payments to governments by extractive industries companies could also reduce the ability and impetus for profit shifting and manipulation of internal accounting practices to avoid tax.

Finally, the introduction of a mandatory reporting regime in Australia that is consistent with other jurisdictions will bring Australia into line with other leading global economies that are operating best practice reporting regimes when it comes to accountability and transparency of extractive industries. This will improve the attractiveness of Australia as an investment destination.

The Costs

There will be increased compliance costs for companies associated with increased reporting requirements particularly those who are not subject to a mandatory reporting regime in other jurisdictions.

In such jurisdictions such costs have been minimised by establishing revenue or assets thresholds to ensure only larger players are captured by mandatory reporting regulations. Given the introduction of such regimes in Europe and North America many global companies are already subject to such reporting and the additional cost of Australian compliance would be minimal.

Companies that disclose payments may be at a competitive disadvantage compared to companies whose payments are never disclosed,however this can be remedied by more universal disclosure rules.

Technical issues associated with disclosure by joint ventures and quasi government bodies may also need to be addressed in establishing a mandatory reporting regime.

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