Reports on Payments to Government Regulations 2014 come into force

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10 Dec, 2014

On 1 December 2014 the Reports on Payments to Government Regulations 2014 (the Regulations) came into force. The Regulations, which are applicable in the UK for accounting periods beginning on or after 1 January 2015, bring into UK law Chapter 10 of the EU Accounting Directive (2013/34/EU) and apply to UK incorporated companies that are involved in the exploration, prospection, discovery, development, and extraction of minerals, oil, natural gas deposits or other materials, or the logging of primary forests. Such companies will be required to report publicly payments made to governments in the countries where they undertake extractive and logging operations (also described as ‘country-by-country reporting’). Reports must be filed electronically within eleven months of their year end.

The Department for Business, Innovation and Skills (BIS) went through a formal consultation process earlier this year, receiving written comments from affected companies, civil society groups, industry bodies, and professional firms. The Government published a response to the consultation with revised draft regulations on 21 August 2014. On 25 November 2014 BIS issued draft guidance on public transparency reporting for the extractive industries, which is open for consultation until 17 December 2014.  

Under the Regulations, an entity will be required to prepare and deliver a report to Companies House if it is a UK registered company or partnership and meets the test to be either a large undertaking or a public interest entity (PIE), and is engaged in mining, oil and gas or primary forestry logging activities. In this context a large undertaking is defined as fulfilling two of the following three criteria:

  • Balance sheet total in excess of £18m;
  • Net turnover in excess of £36m; and
  • Average number of employees for the period in excess of 250.

In this context a PIE is an entity whose transferable securities are admitted to trading on a UK regulated market (irrespective of where the entity is registered), a credit institution or an insurance entities. Subsidiaries are exempt from preparing a report if their payments to governments are included in a consolidated report prepared by another company in the UK or another EEA member state. Parent companies are required to prepare a consolidated report disclosing payments made by subsidiaries engaged in extractive or logging activities (regardless of whether the parent itself undertakes such activities) unless they are in turn part of a larger UK or EEA group preparing a report on payments to governments. 

The report will need to include:

  1. the total amount per type of payment;
  2. the government (which includes national, regional or local authority of a country and includes departments, agencies, or state controlled enterprises) to which each payment has been made, including the relevant country of regional or local authorities, departments or state controlled enterprises;
  3. the total amount of payments to each government; and
  4. where those payments have been attributed to a specific project, the total amount per type of payment, made for each such project and the total amount of payments for each such project. Payments to be reported include production entitlements; taxes levied on income, production or profits (excluding VAT); royalties; dividends (unless paid by an undertaking to a government as an ordinary shareholder); signature, discovery and production bonuses; licence fees, rental fees or entry fees; and payments for infrastructure improvements. Any payment, or series of related payments, need not be taken into account for the purposes of the report if it is less than £86k.

The report must be delivered to Companies House by electronic means.

An exemption will be available where a company is required to report under another transparency regime that the European Commission has assessed as equivalent to the requirements of the Accounting Directive and the report is filed at Companies House. However to date, no other regimes have been assessed as equivalent.

The Financial Conduct Authority is also expected to publish the outcome of its consultation paper, CP 14/17, in early 2015. CP 14/17 addresses implementation of the equivalent requirements of the revised Transparency Directive (Directive 2004/109/EC) (TD) as amended by the Transparency Directive Amending Directive (Directive 2013/50/EU) (link to the European Commission website)) and extends the requirements to companies with securities admitted to trading on an EEA regulated market within whose home state is the UK (primarily those incorporated in the UK and those incorporated outside the EEA whose only or first EEA listing is London). It is expected that companies reporting under the TD will have to file their report electronically with the Financial Conduct Authority within six months of the period end.

Update 30/11/2015 - amendments to the Regulations have been made.  The amending Regulations rectify errors in the original Regulations. The most significant correction is to amend the definition of undertaking to ensure that the subsidiary undertakings whose payments to governments are to be included in the consolidated reports of a UK parent undertaking include overseas subsidiary undertakings. The amending Regulations (link to statutory instrument) come into force on 18 December 2015.  

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