{"id":12224,"date":"2011-10-03T18:56:58","date_gmt":"2011-10-03T17:56:58","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=12224"},"modified":"2011-10-03T18:56:58","modified_gmt":"2011-10-03T17:56:58","slug":"reacting-to-the-draft-eu-accounting-directive-on-country-by-country-reporting","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2011\/10\/03\/reacting-to-the-draft-eu-accounting-directive-on-country-by-country-reporting\/","title":{"rendered":"Reacting to the draft EU Accounting Directive on country-by-country reporting"},"content":{"rendered":"

I have now published (at the request of those who supplied them to me) the drafts of the EU\u00a0Accounting<\/a> and\u00a0Transparency<\/a> directives as they apply to\u00a0country-by-country reporting. Of the two the Accounting\u00a0Directive\u00a0is much the more\u00a0detailed\u00a0and since the two are meant to be consistent it it to the Accounting Directive (AD) that I will refer.<\/p>\n

Chapter 9 of this draft contains the issues of relevance for this is the draft AD\u00a0itself\u00a0rather than the\u00a0preamble\u00a0and notes to it.<\/p>\n

Highlighting what I think are some of the key issues, the following jump out:<\/p>\n

1) The AD applies to all large companies in the\u00a0extractive\u00a0industries\u00a0and forestry.<\/p>\n

2)\u00a0Government\u00a0is very widely defined to mean a\u00a0government, regional\u00a0government\u00a0and a\u00a0government\u00a0agency.<\/p>\n

3) Project level reporting is\u00a0currently\u00a0included - as requested by\u00a0Publish What You Pay.<\/p>\n

4) Large undertakings are required to file an annual report on payments made by them in aggregate across all their subsidiaries operating in a\u00a0jurisdiction to the\u00a0government\u00a0of that place and its agencies.<\/p>\n

5) Payment includes payments in kind.<\/p>\n

6) Only taxes relating to the extractive industries are covered. sales and payroll taxes are excluded, although sales\u00a0taxes\u00a0are likely to be\u00a0minimal\u00a0anyway.<\/p>\n

7) Materiality is defined in\u00a0terms\u00a0of the\u00a0recipient\u00a0country not the paying company.<\/p>\n

8) It is not\u00a0entirely\u00a0clear that the report is part of the annual accounts and it is not clear whether it has to be audited, but the\u00a0reference\u00a0to\u00a0Chapter 2 of Directive 2009\/101\/EC implies that this is the case\u00a0because\u00a0I can't see what else it could mean since it\u00a0does\u00a0not seem to add this new report to the list of disclosures required there but adds it into those disclosures - and that can\u00a0only\u00a0be in the accounts.<\/p>\n

9)\u00a0Reporting\u00a0exemptions are offered but thankfully will be very hard as written for any company to use.<\/p>\n

10) The EU is\u00a0reserving\u00a0the right to define\u00a0materiality\u00a0specifically.<\/p>\n

So that's the good news.<\/p>\n

Now the problems:<\/p>\n

1) Defining an extractive industries company will be a nightmare.<\/p>\n

2) I suspect project\u00a0reporting\u00a0to be a major obstacle - but welcome it.<\/p>\n

3) There is a real problem that only tax payments are to be included. Let's not for a\u00a0minute\u00a0pretend that this is as a result\u00a0country-by-country reporting\u00a0because\u00a0it is not. It's just disclosure data that will be very hard to interpret\u00a0because\u00a0no one will know what sales and profits are, for example, in the countries in question meaning that very little meaningful interpretation of the data disclosed form an accounting\u00a0perspective\u00a0will be possible. I'll\u00a0address\u00a0this in more detail, later.<\/p>\n

4) More broadly, I welcome the fact that the AD seems to require reporting whether or not the EI\u00a0company\u00a0is actually extracting resources in a territory or not - meaning\u00a0that, for example, profits taxes appear to have to be reported everywhere, although I am troubled that tax havens will not be covered since a non-payment can't trigger\u00a0disclosure\u00a0under the rules noted and that is a major\u00a0omission.<\/p>\n

5) There is no requirement in here to demand some other very basic\u00a0disclosures\u00a0we have asked for\u00a0including:<\/p>\n

- a list of every country in the company operates<\/p>\n

- a list of its\u00a0subsidiaries\u00a0by territory<\/p>\n

6) No reserves data by country is required, meaning a massive information source\u00a0critical\u00a0to civil\u00a0society\u00a0in many developing countries is omitted from disclosure.<\/p>\n

7) The data demanded appears to be cash flow data. This imposes serious cost on companies\u00a0and\u00a0is inconsistent with the accounting basis used by companies\u00a0themselves. More logically accounting data requiring profit and loss account charges due by category of liability reconciled with opening and closing\u00a0liabilities\u00a0due and\u00a0total\u00a0payments\u00a0made in aggregate would have been of much ore use as this then becomes accounting data.<\/p>\n

8) But most\u00a0problematically, this is not accounting data. So, for example, without sales data the rate of royalty paid cannot be checked and\u00a0consistency\u00a0over time cannot be\u00a0appraised.\u00a0Likewise\u00a0without\u00a0profits\u00a0data whether or not taxes due on profits are reasonably stated cannot be\u00a0appraised. And if data is not required for all territories - such as tax havens - then the\u00a0risk\u00a0of profits being artificially relocated from\u00a0developing\u00a0countries\u00a0to such places cannot be appraised.<\/p>\n

I do of course welcome this development but it is a very long way short indeed of meaningful accounting disclosure that will really hold these companies to account. In that sense this is a profound\u00a0disappointment: the message that capital must be held to\u00a0account\u00a0for what it does not just in\u00a0developing\u00a0countries\u00a0but on its flow into and out of\u00a0such\u00a0places has bot been heard as yet. That's worrying.<\/p>\n

Country-by-country reporting has come a very long way\u00a0since\u00a0I published the first version of it in\u00a0January\u00a02003 but it still has a long way to go as well. The campaign has to go on - and pressure has to still be brought to bear on the EU to get these reforms through, with improvements if possible.<\/p>\n

My thanks to all who are bringing that\u00a0pressure\u00a0to bear in Publish What You Pay and elsewhere: their\u00a0efforts\u00a0have been quite extraordinary, and will be in the\u00a0months\u00a0to come too, I know.<\/p>\n

NB: published in haste and maybe subject to revision later<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

I have now published (at the request of those who supplied them to me) the drafts of the EU\u00a0Accounting and\u00a0Transparency directives as they apply to\u00a0country-by-country
 Read the full article…<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[26,79,44,1],"tags":[],"class_list":["post-12224","post","type-post","status-publish","format-standard","hentry","category-accounting","category-country-by-country","category-europe","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/12224","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=12224"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/12224\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=12224"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=12224"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=12224"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}