U.K. Publishes First EITI Report Amid Tax Transparency Media Frenzy

On Friday the United Kingdom published its first-ever Extractive Industries Transparency Initiative (EITI) report. In many ways it has been a long time coming.

Even though the U.K. led the way in establishing the EITI back in 2003, in 2011 the government was still shunning the idea of actually implementing the voluntary initiative as a member country.

Finally, in 2013, the U.K. committed to join the EITI in a year when the country really began to raise the stakes on natural resource transparency internationally. This leadership included championing European extractive sector payment transparency regulations and placing this issue at the heart of the U.K.’s chairmanship of the G8. In 2014 the U.K. formally sought and was granted EITI candidate status.

Payment disclosure

And so on 15 April the U.K. reached another milestone with the launch of its first EITI report, covering 2014. For the first time, members of the public now have a detailed breakdown of taxes, license fees and other payments made to the U.K. government by 71 individual oil, gas, mining and quarrying companies that have physical operations in the country. For each company, the data has also been broken down by individual license and by individual oil field in cases where petroleum revenue tax (a field-based tax charged on profits generated by individual oil fields) applies.

The U.K. EITI report reveals that government agencies received revenues totaling £3.23 billion in 2014. Of this amount, the report reconciles £2.43 billion using payment data supplied by companies. The difference of £802 million is due mainly to six oil and gas companies which did not report tax payments to the U.K. EITI’s independent administrator.

The majority of companies that made material payments to the government did choose to participate in this entirely voluntary scheme. However, if the U.K. is to gain compliant status with the EITI standard next year, all companies making material payments to the government must participate.

The report reveals that revenues from oil and gas extraction account for over 98 percent of extractive revenues in the U.K., with mining and quarrying contributing a tiny percentage in comparison. BG Group (now owned by Shell) was the largest taxpayer (£646 million) while household names Shell and BP received net refunds of £187.3 million and £125.5 million respectively. It is also notable that a number of US companies including Chevron and Exxon reported tax information on their upstream operations in the U.K. Those companies have so far refused to report their tax information under EITI in the United States.

The timeliness of U.K. EITI data also merits further discussion. A number of companies including Shell, Statoil, Total (p. 311) and Tullow (p. 171) have already reported their payments to the U.K. government (and all other governments, for that matter) for 2015 under mandatory payment disclosure laws, which means that EITI reporting with its current 15-month lag risks being out of date and less relevant to the public. U.K. EITI should look at ways in which it can integrate mandatory reporting data into its own processes to improve timeliness and reduce the reporting burden on companies.

Nevertheless, this additional tax transparency in the U.K. is very welcome at a time when the issue is under the spotlight following the Panama Papers leak and ahead of the U.K.’s anti-corruption summit on 12 May. Indeed, the emphasis on public disclosure in the spirit of EITI should be applied to other recent tax reporting initiatives for large companies such as non-public country-by-country reporting of data promoted by the OECD and the European Commission’s recent hybrid approach (i.e., public country-by-country reporting for only some jurisdictions), which would help to improve understanding, enhance scrutiny and engender greater accountability of multinational corporations.

In addition to the revenue data, the report also includes a chapter about the U.K.’s extractive sector, including an overview of the country’s legal framework and fiscal regime for oil, gas, mining and quarrying.

Beneficial ownership

The report also includes a section on beneficial ownership by relevant reporting companies (i.e., generally excluding publicly listed companies). Under U.K. EITI, 13 such companies stated that they had made material payments to U.K. government agencies, but only one company actually disclosed a beneficial owner who owns or controls more than 25 percent of the company, and no company disclosed that a politically exposed person (PEP) owned or controlled more than 5 percent. While the accuracy of the information submitted by the companies is not necessarily in question, it will be important to understand why so little information was revealed as part of this exercise in the U.K. This work is particularly urgent in the wake of the Panama leaks and the fact that the U.K. EITI provisions on beneficial ownership (including the 25 percent threshold) track with the provisions of the U.K.’s own much-trumpeted public beneficial ownership register which will come online later this year.

It is positive that U.K. EITI has embraced beneficial ownership disclosure so early on, although the report shows that all those involved in U.K. EITI have work to do to ensure that useful information is produced. This work will be important within the U.K. and also to serve as a model for other EITI countries around the world which are faced with implementing the EITI’s new requirements on beneficial ownership.

Open data

The quantitative data from the report will also be made available on the U.K. government’s data site in open data format shortly. Making U.K. EITI data available in this format will improve accessibility, increase the ways in which the data can be used, and meets the U.K.’s Open Government Partnership commitment to make extractives data more readily available and machine-readable.

As the U.K. sets about preparing for its next EITI report and gears up to undergo validation under the requirements of the standard in 2017, it will be important for members of the U.K. EITI multi-stakeholder group to continue working together constructively in order to produce information that informs U.K. citizens of the costs and benefits associated with extractive activities in the U.K.

Joseph Williams is NRGI’s senior advocacy officer and an alternate member of the U.K. EITI multi-stakeholder group. He will speak at a public launch event for the report on 19 April 2016.