Global Policy Forum

On June 12, European Parliament adopted two new directives in a plenary session, which contain disclosure requirements for the extractive industry and forestry businesses. After the guidelines implementation in the EU member countries, these companies must disclose which payments they make to governments – in fact, disaggregated in terms of countries and projects. With this move, the European Parliament is pursuing similar guidelines as the ones adopted in the US in 2010 as part of the Dodd-Frank Act, which come into effect this year. Combined with US legislation the directives will cover around 70% of the value of the global extractive industries, creating the basis for a new global transparency standard. 

June 12, 2013 | Global Policy Forum

European Parliament adopts country- and project-level reporting for extractives and forestry

By Wolfgang Obenland (GPF), English by Tim Pfefferle

Civil Society Organizations, from the Publish What You Pay coalition and Global Witness to Brot für die Welt, MISEREOR and Transparency International have unanimously welcomed the adoption of the transparency and accounting directives – in part even in exuberant terms as an “historic step”. The guidelines are supposed to help people in resource-rich countries to hold their governments accountable with regard to their financial conduct, by making available more information on public revenues.

The guidelines, which aim to make transparent payments in the form of taxes, license fees, dividends, bonuses (insofar as they are paid to governments) as well as fees and payments for infrastructure improvements with a threshold of 100,000 Euros, were accepted by a broad majority of Parliament consisting of most parliamentary parties. Given that a compromise had already been agreed on with the Council of the European Union (the representation of memberstate governments), the directives will soon be able to come into effect. Due to what many see as the particular vulnerability to corruption of this sector, payments are not only published with reference to individual countries, but also to individual projects.

Bernd Bornhorst of MISEREOR, a German catholic aid agency, commented on the new guidelines: “Today’s decision by the EU Parliament represents a milestone in the fight against poverty and corruption. The new transparency rules are an important prerequisite in order for the global south to be able to use its resource endowments to create real improvements of living standards. In this way, people can at long last demand accountability from their governments and from companies, and thus contribute to the reversal of the resource curse.”

Arlene McCarthy, rapporteur in the judiciciary committee dealing with the transparency guidelines, commented: “This tough new law will be a major weapon in the global fight against corruption. After working closely with NGOs and the umbrella group Publish What You Pay, we now have an agreement that shows how effective cooperation between legislators, citizens and action groups can deliver real change for communities in countries that are rich in natural resources but whose citizens are trapped in poverty."   

However, what will be decisive for the new EU legislation’s effectiveness will be the transformation into national law. It is, for example, the member countries’ responsibility to decide the way in which data is supposed to be published.

“It will be important that companies make their data available in machine-readable format, so that it can be processed and evaluated. Only this will enable activists and journalists to work with it later”, said Klaus Seitz of Brot für die Welt, Germany’s Lutheran aid agency. “Moreover it is the responsibility of member states to stipulate effective sanctions, which are applied if companies infringe the disclosure requirement. In order for the legislation not to lose its teeth, there is a need for appropriate measures as well.”

As pleasant and long-desired today’s adoption of the guidelines may be, it is equally regrettable that the EU Parliament was not able to establish itself against the blockading stance displayed by some European governments with more sweeping proposals. Thus, the influential judiciary committee demanded as recently as September 2012 that the guidelines should not only apply to extractive and forestry companies, but also to telecommunications and infrastructure companies as well as banks.

After all, it was only recently that adopted directives demonstrated that more extensive resolutions are possible even in a last minute situation. In April, extensive disclosure requirements for banks were adopted within the framework of the capital requirement directive CRD IV. Consequently, banks, starting from January 1 2015, must disclose, on a yearly basis, and disaggregated in terms of member countries and third countries in which they have branches, the following: Company, nature of activities and geographic location; revenue; number of wage and salary earners in terms of full-time equivalents; profit or loss before taxes; taxes on profit or loss; received state assistance.

From the point of view of tax justice, these details are necessary, not only to verify whether governments handle their revenues responsibly, but also whether payments coming from companies – above all in the form of taxes – really correspond to their economic activity in the country. This is all the more important given that payments below the value of 100,000 Euros are particularly interesting in terms of combating tax evasion and fraud. In the absence of also obtaining information on the general economic activities of companies, the guidelines adopted today still remain correct and important – but still only a first step in the right direction.

Sven Giegold from the European Greens said the following on this topic: “However, the chance at effective measures against transnational company’s tax evasion was squandered. This is disappointing, since we didn’t need unanimity in the Council for the revision of the accounting guideline and the transparency guideline, which regularly block European solutions to tax issues.”

The German original of this article was posted on the “Blog Steuergerechtigkeit”, the blog of the Tax Justice Network Germany.