I was happy to see a rather lengthy discussion in Tax Analysts[
gated] a little while ago, authored by Randall Jackson on the emerging US corporate tax transparency rules. These rules derive from a global movement to counter corruption, called the Extractive Industries Transparency Initiative (EITI). The US rules were enacted as a hasty and rather stealthy last-minute addendum to the Dodd-Frank Wall Street Reform Act of 2010, and have yet to be implemented, in part because of intense industry pressure. That pressure continues, especially from the American Petroleum Institute, even though that organization expresses support for EITI in principle. Jackson describes how the disclosure rules came about under Dodd-Frank, and what information is set to be disclosed when the first US companies begin making their disclosures thereunder (February 2014 at the earliest):
Dodd-Frank section 1504 amends the Securities Exchange Act of 1934 by adding a new section 13(q), "Disclosure of Payments by Resource Extraction Issuers," which requires country-by-country (and project-by-project) reporting of all payments, including taxes, made to all foreign governments and the U.S. federal government. (Analysis of Dodd-Frank .)
The legislation requires companies engaged in the commercial development of oil, natural gas, or minerals that file a yearly report with the SEC to file an additional detailed annual report (new Form SD, which is separate from countries' 10-K annual report) listing all their payments, including taxes, fees (including license fees), royalties, production entitlements, bonuses, dividends, and payments for infrastructure improvements. Payments of at least $100,000 during the most recent fiscal year must be listed.
...Reports must be detailed and specific, listing payments to each foreign government, foreign subnational government, and the U.S. federal government. (Payments to subnational U.S. governments, such as state governments, need not be reported.) The reports will be publicly available online.
More specifically, the reports must separately list each project and the types and totals of payments made in connection with each project; the types and totals of amounts paid to each government, including a separate list of the governments that received payments; the total payments by category; the currency in which the payments were made; the relevant financial period; and the business segment of the company that made the payment.
Jackson discusses the origin of the inclusion of the EITI addendum in Dodd-Frank (by means of an amendment by Senators Cardin & Lugar, whose prior attempt to pass EITI as a stand alone bill failed in 2009) and the subsequent industry pressure in some amount of detail. He includes a description of API's attempt to unwind the legislation via a legal challenge. API is arguing that the SEC failed to undertake a sufficient cost/benefit analysis of the rules, failed to study how the rules and costs would impact US companies doing business in other countries, and failed to create exemptions in cases where foreign law would prohibit the required disclosure. Jackson quotes the complaint: "the Commission did not even bother to determine how many countries had laws on the books prohibiting disclosure." He also quotes the SE's response:
[T]he SEC wrote that it had rejected commentators' suggestions to exempt firms operating in countries where the required disclosure is prohibited because the agency is skeptical that such prohibitions actually exist, and allowing exemptions would violate the spirit of the law. Furthermore, it said that allowing that kind of exemption could encourage foreign countries to pass anti-transparency laws or to interpret existing laws in a harsher fashion.
To which Cardin and Lugar responded:
"API wants to push us back to a time when the U.S. had few tools to add accountability and stability to the inherently unstable energy sector," Cardin said. "Congress and the SEC carefully crafted a reasonable and very manageable reporting requirement that will bring greater transparency to the oil, gas, and mineral sectors."
"The U.S. economy and our values substantially benefit when our companies are working in oil-, gas-, and mineral-rich states," Lugar added. "But the benefits will not be realized if investments serve to entrench authoritarianism, corruption, and instability. With oil prices high and volatile, our economy needs more transparent markets, not less.
Cardin and Lugar, along with Senator Levin, have submitted an amicus curiae brief in support of the SEC, which Jackson quotes:
"Resource companies can believe whatever they wish and make any communication they wish about their payments to foreign governments, 'the resource curse,' or the benefits or costs of transparency; they have done so throughout this process. What resource companies may not do is impede the power of the legislative branch to require disclosure of objective information to fulfill compelling public policy objectives, including the strengthening of American national and energy security and investor protection."
It remains to be seen whether industry will be successful in pushing back the EITI regime; if not, we should start seeing the additional disclosure I believe by September of this year. So here is a question. How many multinational extractive industry companies are there in the world, and how many will be covered by the US EITI regime? In other words, if and when the US rules are in place, how many extractive industry companies will
not have their information revealed through these disclosure rules by virtue of affiliation with US companies? Is it a few, many, or most? If anyone knows whether this is known or could be ascertained, I'd like to know.
You should check out the discussion on Naked Capitalism about Cyprus. What is even better is the chairwoman of the EU Parliament Economic Affairs Committee MEP Sharon Bowles is rip shit on Twitter. Which is too bad for the FATCAFanatics because this same committee decided on Thursday to hold hearings on FATCA on a too be determined date. This will be rather unpleasant for the EU Commission as the EU Parliament Economic Affairs Committee is in a rather foul mood.
ReplyDeletehttp://en.wikipedia.org/wiki/Sharon_Bowles
The woman behind all of this is MEP Sophie In't Veld who is a longstanding thorn in the side of both the EU Commission and the US government on many issues.
"Best of Videos" of MEP Sophie In't Veld.
http://www.youtube.com/watch?v=M2ZRrguoeF0
http://www.youtube.com/watch?v=xioTvlDNev4
http://www.youtube.com/watch?v=FbI4u16Uks8&playnext=1&list=PL035E8EAA711C92F0&feature=results_video
Link to Sharon Bowles Twitter page.
ReplyDeletehttps://twitter.com/SharonBowlesMEP
Excellent, thanks. The situation is simply astounding.
DeleteMore from Sharon Bowles:
ReplyDeletehttp://sharonbowles.org.uk/en/article/2013/671744/the-cyprus-bailout-deal-is-a-disaster-for-eu-rules-and-single-market-principles-bowles
Sharon Bowles MEP, Chair of the European Parliament's Economic and Monetary Affairs Committee, has said she is appalled by the Cyprus bailout, which includes 'bailing-in' some guaranteed deposits - i.e. swapping them for shares.
Sharon Bowles MEP said:
"This grabbing of ordinary depositors' money is billed as a tax, so as to try and circumvent the EU's deposit guarantee laws. It robs smaller investors of the protection they were promised. If this were a bank, they would be in court for mis-selling.
"The lesson here is that the EU's Single Market rules will be flouted when the Eurozone, ECB and IMF says so. At a time when many are greatly concerned that the creation of the 'Banking Union', giving the ECB unprecedented power, will demote the priorities of the Single Market, we see it here in action.
"Deposit guarantees were brought in at a maximum harmonising level so that citizens across the EU would not have incentive to move funds from country to country. That has been blown apart.
"What else will be blown apart when convenient? All the capital requirements we have slaved over, what about the new recovery and resolution rules? What does this mean for confidence in cross-border banking and resolution and preventing the fragmentation of the banking sector?
"When the dust has settled on this deal, which I hope it never does, we will see that the Single Market has been sold down the river for a shoddy price. All the worse as the consequences for Cyprus of the Greek bond haircuts were obvious."
Tim again:
Whatever EU Officials will be testifying before this committee about FATCA I hope will have a real enjoyable time.