The UK is the first EU member state to implement the EU Directive on Extractive Industries, designed to achieve greater transparency of dealings between those who work in the extractive industries and governments around the world.
Following the implementation of the Payments to Government Regulations 2014 (the Regulations) back in December, UK incorporated companies that are involved in the extraction of minerals, oil, natural gas deposits or other materials (and also forestry logging) will be required to report publicly payments made to governments in the countries where they undertake their extractive operations. The Regulations apply to accounting periods beginning on or after 1 January 2015.
Under the Regulations, a corporate body will be required to provide the relevant information if it is a UK registered company or partnership and is either a large undertaking or a public interest entity, and is engaged in mining, oil and gas or primary forestry logging activities.
A large undertaking is an entity which has at least two of the following three criteria:
(i) A balance sheet total in excess of £18m;
(ii) Net turnover in excess of £36m; and
(iii) The average number of employees for the relevant period is in excess of 250.
A public interest entity 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 entity.
This will require directors at a large number of UK oil, gas and mining companies to disclose a range of payments, including taxes, royalties and dividends made to governments on a country and project basis as of January 1. The penalties for non-compliance include a criminal conviction and also a fine.
According to the Financial Times, an impact assessment conducted by the UK government suggests that the additional reporting requirements would cost companies an initial £12m followed by £6m a year to comply.