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BIS publishes response to its consultation on country-by-country reporting in the extractive industries

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21 Aug 2014

The Department for Business, Innovation and Skills (BIS) has published its response to its consultation on the implementation of the country-by-country reporting provisions of the EU Accounting Directive ("the Directive"). These provisions apply to extractives companies – those in the mining, oil and gas sectors, as well as those who log primary forests.

The Directive (Chapter 10 of the EU Accounting Directive (Directive 2013/34/EU (link to European Commission website)) (and changes made by Directive 2013/50/EU (link to the European Commission website) to the Transparency Directive (2004/109/EC)) requires such companies to prepare a report on a project-by-project basis of all payments to governments (including, but not restricted to, licence fees, taxes and royalties). Parent companies must prepare a report for the group which they head; subsidiaries are exempt if they are part of a larger EEA incorporated group which publishes a consolidated report including their payments.

In its response, the Government confirms its intention to lay regulations before Parliament in Autumn 2014 and will require extractives companies to prepare and file country-by-country reporting for financial years commencing on or after 1 January 2015, a year in advance of the EU deadline. As this might require UK subsidiaries of EEA incorporated parents to prepare a report for one year, prior to their parent being obliged to prepare a group report and therefore them becoming exempt, the government will exempt such subsidiaries for one year only.

Other significant points of the Government’s response are:

  • The deadline for all companies within the scope of the regulations to file their report with Companies House will be eleven months from the end of the financial year.
  • The penalty regime for filing late, or failing to file at all, will be aligned with that for filing.
  • The government will require electronic filing of payments to government reports. It is encouraging an industry-led solution, working with civil society, to guidance on electronic reporting.
  • If Companies House believes that a company ought to file a payments to government report but has not done so, the Registrar of Companies will write to the company asking for confirmation that (a) no report is needed as no reportable payments have been made; (b) a report is necessary and will be filed within 28 days; (c) a report has been filed in another EEA member state by the company’s parent; or (d) an report prepared a non-EEA reporting regime recognised as equivalent by the EU has been filed. The response to this letter will be published. Directors found guilty of failure to file a report may be subject to an unlimited fine; directors who file a false, misleading or deceptive report, or give a false, misleading or deceptive answer to an enquiry by Companies House, may be liable to a term of imprisonment or a fine.

A similar obligation in the amended Transparency Directive will require extractives companies incorporated outside the EEA but with securities traded on an EEA regulated market to prepare a similar report. Respondents to the consultation said that it would be helpful if this requirement was implemented in the UK on the same timescale as that applying to UK incorporated companies. The Financial Conduct Authority is expected to consult on this later in August 2014.

In relation to this, on 15 October 2014 the government announced that the UK had been admitted as a candidate country for the Extractive Industries Transparency Initiative (EITI). This will require extractives companies operating and paying taxes in the UK to report on material payments to the UK government, which in return will report the receipts it receives. These payments will then be checked by an independent administrator and form part of the UK’s EITI reports. The UK’s first report is due in April 2016, which means extractives companies will need to submit their information by mid-2015.  Guidance on reporting is available on the BIS website (including guides for oil and gas companies and mining and dredging companies).

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