Lobby Pack: EU Directives on Transparency by Multinationals

Lobby Pack: EU Directives on Transparency by Multinationals

Summary:Historic EU legislation fostering transparency in the extractive and forestry sectors could be adopted in the next fourmonths, as part of the revision of the Transparency directive and the 4th and 7th Accounting directives. It is critical that civil society organisations (CSOs) join efforts to ensure that key provisions of the European Commission’s proposals be guaranteed (disclosure requirements on a country-by-country and project-by-project basis and the inclusion of listed and non-listed companies), and that certain omissions (no exemptions, materiality thresholds, quality of information) be addressed so as to reduce corruption in the extractive sector.The text should also be strengthened to tackle tax evasion in all sectors. Eurodad works closely with Publish What You Pay on this campaign.

This briefing is designed to facilitateEurodad members’ active involvement to help achieve these aims, and provides relevant information and pro forma letters. Eurodad can provide further support, documents and lobby tools upon request.

1)Help us secure historic EU legislation on corporate transparency now!

What is the legislation about?

It is about transparency and accountability of multinational companies and governments.

The Commission issued proposals which would require listed and large non listed companies active in the extractive and forestry sectors to disclose all the payments they make to governments (taxes, royalties, etc.) everywhere they operate. This means that for each country and for each project, information on the actual amounts that companies pay to governments would be available publicly.

Why do we need your involvement?

Civil society organisations and citizens across the world are on the verge of obtaining historic legislation that would require multinational companies (MNCs) in the extractives and forestry sectors to report on all the payments they make to governments. If adopted, this legislation would represent a real victory and could have wide-ranging effects on a series of global problems. It would be:

• A victory in the fight against corruption and the natural resource curse. Opacity in the extractive and forestry sectors encourages corruption for the benefit of an elite few. While 1.5 billion people live on less than $2 a day in "resource-rich countries”, companies listed or based in the EU would, like US companies, have to disclose all payments to governments. Populations would be able to make their governments accountable for the use they are making of their oil or mineral rents.

• A big precedent for corporate accountability. This new EU legislation would set a precedent in Europe as did the Dodd Frank Bill in the USA: for the first time US companies are required to reveal financial information that is not only of interest for investors but for a whole range of stakeholders, including CSOs, governments and ordinary citizens whose lives are directly or indirectly affected by multinational companies’ behaviour.

• A first step against tax dodging. Tax is the most important and most sustainable source of finance for development. With even more transparency than currently proposed, governments would be better able to tackle tax avoidance. Half of world trade now goes through tax havens and MNCs are using increasingly complex mechanisms to shift profits away from producer countries. A country-by-country breakdown of their activities would deter MNCs from such strategies. Disclosure of payments in host countries could pave the way for moredetailed disclosure in any country where the MNC operates and for any sectors, as the European Parliament has recommended.[1]

We need your support NOW!

The political timeline for the revision of the Transparency and Accounting Directives is extremely tight and attempts by some corporations and governments to weaken the proposed legislation are fierce. After the European Commission issued its proposals in October 2011, the future of this legislation is now in the hands of two co-legislators, the European Council and the European Parliament.

At the European Council level, discussions are held within the Competitiveness Council. At the European Parliament level, the Committee on Legal Affairs (JURI) plays a central role as it is responsible for the text. The following committees give opinions (ECON)Economic and Monetary Affairs, Development (DEVE) and Foreign Affairs (AFET)

Council

March / Further discussion in the technical working group
30-31 May / Last Competitiveness Council under the Danish Presidency / Position ready
European Parliament
21 March / JURI releasesdraft report (other committees will have to prepare drafts before this point)
28 March / Presentation of draft report in JURI (Legal Affairs Committee)
8 May / Deadline for amendments
30-31 May / Consideration of amendments / Position ready
9-10 July / Vote in JURI
September / Potential final vote and adoption

For more details more details on the calendar or procedure please do not hesitate to contact Eurodad or refer to the procedure file on the Transparency directive, and the procedure file on the Accounting Directives.

What you can do to ensure a successful outcome:

1)Tell your government: EU Member States will meet in the EU Competitiveness Council, which will have to decide on the proposals in cooperation with the European Parliament. It is therefore crucial to push our European governments to influence other Member States and strengthen the directives.

You can use our template letter to Member States, which directly calls for their support

Ask for a meeting with your government’s officials, especially in the Finance Ministries.

2)Contact your MEPs: The European Parliament’s amendments to the text and vote are absolutely crucial.

You canuse our template letter to MEPs to call for their support

3)Contact your MPs: MPs can also play an important role by raising the issue in their national parliament (oral or written questions), calling on their government to defend the EC proposal and go further in order to curb corporate tax evasion and avoidance, and therefore pushing for strengthening the EU directives.

You can usesend this template question to your MPs, which they would use as a basis to ask your government about its attitude to EU legislation on transparency.

4)Ask CSO colleagues to lobby with us: As shown above, transparency could have a series of positive and wide-ranging effects. Transparency is directly linked to the fight against corruption, poverty, andcorporate malpractice. It can help us achieve more sustainable development and improve the lives and rights of people in developing countries. Please use every opportunity to link our campaign to yours and to spread the word about the need for support for the EU legislation on transparency.

List of resources for advocacy activities:

In this lobby pack

• The precise reporting requirements we are calling for
• Table on the EC proposals/industry positions/our ask
• Template question to MPs see bottom of document
• Bibliography
• A case study of how country-by-country could have helped prevent tax dodging in the extractive sector
• A case study of how country-by-country could have helped prevent tax dodging outside of the extractive sector

Attached to this email:

• A template lobby letter for MEPs
• A template lobby letter for Member States
• A Eurodad thematic 2-pager on beyond payments data

Petitions:

ONE petition The Trillion Dollar Scandal on Country-by-Country Reporting targeting European decision-makers in general. This records the total number of signatures live so you can give an update figure for lobbying or communications this currently has 52,000 signatures.

Tearfund PetitionUnearththe truth in Europe on Country-by-Country Reporting, this can be used to target individual MEPs.

On Eurodad’s website:

• A template lobby letter for Member States

On PWYP’s online Google docs:

• A PWYP Q and A for lobbyists on Project by Project Reporting
• A PWYP thematic 2-pager on the need for project-by-project reporting disclosure/materiality
• A PWYP thematic 2-pager on exemptions
• A PWYP 2-pager on EC rules complementing the Extractive Industries Transparency Initiative (EITI)

Please note that you do not need permission to access PWYP’s lobby pack but you must login to or create a Google account.

We can suggested specific amendments to MEPs that are interested in a particular issue.

Contacts
Javier Pereira, Eurodad:
Alex Marriage, Eurodad:

2) Content of the Commission’s proposals: what should be changed and added?

On 25 October 2011, the European Commission (EC) proposed revisions to the European Transparency and country financial reporting obligations for cross-border Accounting Directives. These would require EU-listed companies and large unlisted companies active in the oil, gas, mining and forestry sectors to publiclydisclosethe payments they make to governments in each countrywhere they operateand for each project.

Why country-by-country reporting is urgently needed?

While exports of oil, gas, minerals and wood are a vital source of income to developing countries, the lack of reliable information about extractive companies’ activities and payments to governments make it impossible to monitor what governments actually receive. This opacity encourages corruption and enables multinational companies to dodge taxes, thus depriving developing countries of tax revenues which could be used to alleviate poverty and drive economic development instead.

In 2008 Africa’s oil, gas and minerals exports were worth roughly 9 times the value of international aid to the continent ($393 billion vs $44 billion) and over 10 times the value of exports of agricultural produce.[2] And yet many countries have failed to turn natural resource wealth into lasting benefits.

Who would benefit from the EC’s proposal?

If adopted, the future legislation would be a major step towards ending opacity in the oil, gas, mining and forestry industries. Transparency would benefit governments, business, investors and citizens alike:

• For developing countries: transparency would be a step towards poverty alleviation, accountability and democratic control: transparency enables citizens to hold governments and business to account, ensuring that natural resources generate benefits for the whole population rather than being misdirected into the hands of a select few. While many poor countries, especially in Africa, are on the cusp of a major expansion of natural resources exploitation, transparency is urgently needed to maximise the revenues of these finite resources and their management. Over time it would also help reduce aid-dependency by enabling better domestic resource mobilisation.
• For EU countries: transparency would help reduce conflicts and tensions over natural resources exploitation this is very important for stable energy and mineral supplies to the EU.
• For investors and business:country-by-country reporting will inform investors’ risk assessment and stewardship, benefit the best companies and deters less scrupulous competitors. More country-by-country information in any country where the companies operate would provide a full picture of their activities and improve governance for a wide range ofstakeholders.

Safeguarding and strengthening key elements of the European Commission proposal

While the current proposals are key steps towards ending opacity in the extractive sector, attempts to undermine the current version of the text are underway.. A strong text requires the following:

• Disclosure of all types of payments to governments in order to strengthen and complement the voluntary Extractive Industries Transparency Initiative (EITI).This information has already been revealed by some companies without affecting their competitiveness. Chinese companies have disclosed such information when listing on the Hong Kong stock exchange, and Western companies Statoil and Rio Tinto have done so on a voluntary basis.
• Disclosure should apply to activities in all countries including within the EU. This should include countries where companies have a financial trading presence, including tax havens. This disclosure would assist in revealing profit shifting through transfer pricing abuse or thin capitalisation.
• Extractives and forestry sectors: opacity in the forestry sector feeds corruption and allows the proliferation of non-sustainable logging operations that have disastrous environmentalconsequences without benefiting the host country or community.
• Listed and non-listed companies:this will achieve the maximum level of accountability (e.g. limit the reporting avoidance through companies’ delisting or restructuring of the listed activities) and ensure a level playing field among EU companies.
• No exemptions: the proposal includes an exemption clause meaning companies would not have to disclose information if this contradicted host country secrecy laws. The exemption must be removed as although there is scant evidence of such laws existing, the exemption would provide a perverse incentive for opaque regimes to introduce or tighten secrecy laws.

• Tax accountability through broader disclosure: disclosure of payments only is not enough to show that companies pay their fair share of tax. In light of widespread acknowledgement that tax dodging costs developing countries more than they receive in aid, extractive companies should be required to report production volumes, sales and profits in addition to payments to governments. They should also specify names of all their undertakings making payments to governments.

In addition, the scope of the legislation should be defined in the text of the directives, rather than in implementation instruments:

• Accounting information: all information should be audited and provided as part of the annual financial report, this would oblige companies to provide accurate, comparable information, under the current proposal information can be provided in a separate report and there is no specific mention of auditing.
• Project definition: ‘project’ should be defined as ‘specific licence, concession, contract or other legal agreement between the company and a government, where such agreement gives rise to specific revenue liabilities for the company’. The EC’s proposed definition, the lowest internal reporting unit within a company, could lead to manipulation and to incomparable data, weakening the stated objective of the legislation.
• Materiality: the financial level at which companies must start reporting payments is left for the EC to define with delegated acts. Materiality should be determined within the directive text as it is tied in with the definition of projects.

3) Why the EU proposals should go even further: tax dodging could be tackled through broader disclosure requirements

The problem: the cost of tax dodging across the world and the disconnection between corporate structure and actual economic performance

The current proposals, if passed into strong and detailed legislation, will enable citizens to hold their governments to account for how this money is spent, making it harder for corrupt officials to steal. However tax dodging by multinational corporations costs developing countries far more than they lose to corruption and more than they receive in aid.Illicit capital flight (taking the proceeds of dodgy activity out of a country) costs developing countries an estimated $1 trillion a year[3], about ten times the amount received in international aid. Just 3%, of these flows results from corruption whereas tax dodging by companies through what is known as trade mispricing accounts for over 50%.[4]

Although today the 7th accounting directive requires companiesto disclose in annual financial reports all the subsidiaries names, this is not happening in practice. CCFD research reveals that amongst the 50 largest European companies, hardly any obey this rule. “Total, the French oil and gas giant, only provides a name for 217 subsidiaries among the 712 that are consolidated in its annual financial statements, without even indicating the place where they are located: shareholders are forced to guess the location from the name of the subsidiaries.”

A global picture of companies’ activities in any country where they operate is urgently needed for a wide range of stakeholders who have interest in both the reputation and sustainability of those companies:investors,members of the board, trade unions, employees, clients, governments.

One of thesolutions: full country-by-country reporting

This is why the EU proposal for country-by-country reporting should go further, requiring companies to report a full picture of their actual economic performance, including figures for all of their subsidiaries, for every country in which they trade. This full global picture of a company’s cross border operations, would allow revenue authorities to see suspicious transactions helping them collect more money for schools and hospitals. The potential benefits are great, not just in developing countries, but also in the EU.

Tax officials from developing countries such as Colombia have called for companies to publish such information.[5] Disclosing economic performance for every country they trade in, including numbers of employees, would show companies’ contribution there, increasing citizens’ trust. Country-by-country reporting would also help illustrate the distribution of profits and taxes and would show how some companies move profits from where money is made, work is done and pollution produced to countries where taxes are low. For a detailed description of the data that would be disclosed under full country-by country disclosure please see the annex: Information needed to spot tax dodging.

Full country-by-country reporting should require a company to disclose data specific for each country on each of the following areas:

1. Global overview of the group: the name of each country in which it operates and the names of all its subsidiary companies trading in each country in which it operates;