The Hon Matt Thistlethwaite Member for Kingsford Smith PO Box 6022 House of Representatives Parliament House Canberra ACT 2600 E-mail: [email protected]

1 July 2015

Dear Mr. Thistlethwaite,

Re: Federal Opposition Discussion Paper - “Publish What You Pay: Mandatory Disclosure Payments to Governments in Extractive Sectors”

Publish What You Pay (PWYP) and the Tax Justice Network Australia (TJN-Aus) welcome the opportunity to provide this submission to Labor Party’s policy discussion paper on mandatory disclosure payments to governments in extractive sectors.

PWYP Australia is a coalition of 30 humanitarian, faith-based, environmental, anti-corruption, research and union organisations campaigning for greater transparency and accountability in the extractive industries that enjoy broad support across Australia. PWYP Australia is a part of the global Publish What You Pay coalition, a network of over 800 member organisations in more than 60 countries around the world, united in their call for an open and accountable extractive sector, so that oil, gas and mining revenues improve the lives of women, men and youth in resource-rich countries.

In this submission, we will aim to specifically address the questions posed by the paper, in addition to the broader theme of the paper regarding the introduction of a mandatory disclosure regime in Australia.

How can Australia ensure greater transparency and accountability of payments to governments by Australian extractive industries companies where they operate? Australia can ensure greater transparency and accountability of payments to governments by Australian extractive industries companies through the introduction of legislation that requires

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extractive companies listed or based in Australia to disclose all payments made to governments on a country-by-country and project-by-project basis. This legislation should be harmonised with existing laws introduced by the European Union and Governments in Canada, Norway, Switzerland and the United States to the extent that that is possible.

Should Australia implement a mandatory reporting regime for payments to Governments by Australian extractive industries companies where they operate?

PWYP Australia and TJN-Aus support country-by-country and project-by-project reporting for three key reasons: • It allows people in developing countries to know what revenue their governments have received from extractive companies for access to natural resources and therefore empowers civil society to better hold their governments to account for the use of these revenues; • It creates transparency by demonstrating that extractive companies are paying the taxes and royalties required of them by governments and allows companies to demonstrate they are complying with the tax laws in the countries in which they operate. It enables companies to provide clear evidence of how they contribute to government revenues and community development; and  It assists in creating a level playing field between extractive companies. Some Australian based mining companies will be required to report under the legislation of other countries, so it is fairer if this obligation extends to all mining, oil and gas companies operating in Australia.

Having this information available in the public domain is in both the companies and investors interests; better transparency helps to deter corruption through scrutiny of spending and revenues. It has industry support, with BHP Billiton stating that ‘We believe that transparency of government revenue from the extraction of natural resources is an important element in the fight against corruption’ 1 and Rio Tinto affirming ‘Tax transparency also assists in the fight against corruption and enhances the scope for communities and citizens to hold their governments to account.’2 Further, it has clear benefits to investors – creating a climate of investment in Australia of transparent, efficient and competitive markets and positioning Australian companies as a ‘safe bet’ within the marketplace. It also enables investors to better assess the financial, political and reputational risks to

1 BHP Billiton Annual Report 2014 p. 50 http://www.bhpbilliton.com/home/investors/reports/Documents/2014/BHPBillitonAnnualReport2014.pdf 2 ‘Taxes paid in 2013’ A report on the economic contribution made by Rio Tinto to public finances http://www.riotinto.com/documents/RT_taxes_paid_in_2013.pdf p. 1

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which extractive companies are often exposed, while fostering more stable operating environments that enhance prospects for investment returns. Indeed, there is now the possibility that Australian extractive companies will lose out on investment to competitors on markets that are introducing transparency requirements.

Such transparency is an essential element if resource-rich developing country governments are to prevent profit shifting to extra-territorial low-tax jurisdictions and ensure that they receive the payments due for the extraction of their finite natural resources. Country by country reporting, in conjunction with project level disclosure, creates a foundation of reporting mechanisms that ensure true transparency is achieved through comprehensive disclosure of revenue, profits and payments. Full country by country reporting of revenue and profits is increasingly being required of all multinational companies to tax authorities globally through the OECD Base Erosion and Profit Shifting action plan. This will apply to multinational companies operating in Australia with more than $1 billion in revenue from the start of 2016, as announced in the May budget.

Project level disclosure is vital to identifying and preventing corruption and to helping ensure that revenues benefit communities impacted by resource extraction activities. Specifically, project-by- project reporting will be of great assistance to parliaments, local governments and citizens as they monitor the extent to which intergovernmental transfers adhere to distribution rules that determine how much of a company’s total project payment is distributed to local governments or communities. In countries that have fiscally decentralised or are undergoing fiscal decentralisation, such as Indonesia, the Philippines, Cambodia and other countries of strategic interest to the Government and companies listed in Australia, there is little public information to monitor this large flow of revenues to local governments, providing an incentive for government corruption. The data produced by project reporting will not only produce evidence needed to address corruption risks, but will reduce incentives for corruption in fiscal transfers.

As noted in the discussion paper, Australia has recently completed a domestic pilot of the Extractive Industry Transparency Initiative (EITI) within the resources sector. The EITI is a voluntary initiative which requires participating governments to publish what they receive from extractive companies and those companies to publish what they pay to governments. This process is overseen by a Multi- Stakeholder Group (MSG) of government, industry and civil society representatives. Australia’s MSG released its report ‘Extractive Industries Transparency Initiative Multi-Stakeholder Group Report to

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Government’ in May 2015. The report states that ‘The Multi-Stakeholder Group recommends that moving to implementation of the adapted EITI model, as developed through the domestic Pilot, would be appropriate in the Australian context’. 3

Although a voluntary system, the EITI has already shown benefits beyond its primary aims of increased transparency, better governance and reducing corruption. Through its 2012 and 2013 reporting, Ghana identified a US $55 million discrepancy in payment reporting from Anadarko WCTP Ltd to the Ghana Revenue Authority.4 Nigeria has recovered US $443 million from missing tax payments of US $8.3 billion through its EITI processes. The latest EITI report from the Democratic Republic of the Congo (DRC) highlighted that US $88 million dollars is missing and found a tax collecting company unable to account for royalty payments totalling US $26 million.5 The positive impacts of a mandatory reporting system are likely to be even greater.

The introduction of a mandatory reporting framework would complement the EITI in Australia and strengthen the benefits of a voluntary system. It would lead to the generation of timely and easily comparable data, and will also provide data for countries that are currently not undertaking the initiative. Clare Short, the Chair of the EITI and former UK Labour Secretary of State for International Development, has underlined this stating that the “SEC and EU transparency requirements are complementary to, and not in conflict with, the EITI transparency requirements. Let us be clear, the extraction of oil, gas, and minerals is still failing to bring the benefits to ordinary citizens that it should, particularly in the poorer countries. Implementation of the EITI standard does not achieve enough in isolation. We need a range of different transparency, accountability and governance reforms”.6

Several countries have adopted or are in the process of adopting EITI nationally, to complement their mandatory disclosure requirements. Norway is EITI compliant, the USA is a candidate, and numerous EU Member States are in the process of adopting the EITI. The UK is a candidate country and is expected to file its first EITI report in April 2016, whilst France and Germany are both actively

3 The Australian Extractive Industries Transparency Initiative Pilot Multi Stakeholder Group report http://www.industry.gov.au/resource/Programs/ExtractiveIndustriesTransparencyInitiative/Documents/EITI_MSG_ReportToGovt.pdf 4 https://eiti.org/news/ghana-revenue-jubilee-oil-field-doubles-2011-2013 5 Extractive Industries Transparency Initiative progress report 2014 Making Transparency Matter p. 27 https://eiti.org/files/EITI_ProgressReport_2014_En_Web_Interactif_r.pdf 6 https://eiti.org/news-events/clare-short-disclosure-requirements-complement-eiti

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preparing their applications to the EITI. The Netherlands and Italy are exploring the possibility of joining the EITI too.

If Australia does implement a mandatory reporting regime for payments to governments by extractive industries companies should it be consistent with mandatory reporting regimes in other nations?

An Australian mandatory reporting regime for payments to governments by extractive industries companies should be harmonised with the mandatory reporting regimes in other nations, to the extent that is possible. The aim should be to introduce the requirement with the least possible additional regulatory burden, without compromising the objective of the measure. Mandatory disclosure laws for the extractive industries have been adopted in the EU, USA, Canada, Norway and Switzerland, leaving Australia as one of the few major Western economies without mandatory disclosure regulation. We risk becoming an outlier and Australian companies may struggle to compete if we do not follow suit.

The European Union is the first major global market to have implemented mandatory disclosure requirements, paving the way for a global standard. Its Accounting and Transparency Directives were adopted in 2013, and EU Member States have until November 2015 to adopt implementing laws. The UK, France and Austria all adopted laws which came into force at the beginning of this year, so we will see all extractives companies in these important markets publishing the first company reports in early 2016. We strongly believe Australia should use the EU Directives as a basis for its legislation.

These rules require oil, gas, mining and logging companies to annually disclose the payments they make to governments on a country-by-country and project-by-project basis. The new disclosure rules form Chapter 10 “Report on payments to governments” of the EU Accounting Directive7 and Article 6 “Report on payments to governments” of the revised EU Transparency Directive.8 The

7 Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements consolidated financial statements and related reports of certain types of undertakings. http://eur-lex.europa.eu/legal- content/EN/TXT/?uri=CELEX:32013L0034 8 Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013 amending Directive 2004/109/EC of the European Parliament and of the Council on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, Directive 2003/71/EC of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading and Commission Directive 2007/14/EC

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Accounting Directive, which regulates the provision of financial information by all limited liability companies registered in the European Economic Area (EEA)9, requires the disclosure of payments to governments by covered oil, gas, mining and logging companies. It also applies to all EU-registered subsidiaries of Australian companies. Inclusion of the same disclosure requirements in the revised Transparency Directive applies the requirement to all relevant companies listed on EU regulated markets even if they are not registered in the EEA and are incorporated in other countries. It therefore applies to all Australian companies dual-listed on EU regulated exchanges.

All payments above €100,000 (approximately AUD $140,000) must be disclosed, and are disaggregated by project and by level of government. “Project” is defined as “the operational activities that are governed by a single contract, license, lease, concession or similar legal agreements and form the basis for payment liabilities with a government”. “Multiple such agreements”, provided they are “substantially interconnected”, are also considered a single project. The EU Directives do not permit any exemptions.

In the UK, the only country so far to have mandated reporting templates, the Government has adopted a multi-stakeholder approach, creating a ‘format sub-group’ with representatives of industry and NGOs to agree on reporting templates. This has resulted in a draft template which all stakeholders can support, and which will present company reports in an open, machine-readable and easily comparable format.10 We heartily endorse this approach and would be very happy to work with all interested stakeholders in Australia to develop an online template and interface and a data output interface.

Norway has adopted its own laws11, which closely mirror the EU Directives and which are already in force. Norwegian companies already publish their payments to government reports. The biggest company covered by this legislation is Statoil, whose 2014 report was published earlier this year.12

laying down detailed rules for the implementation of certain provisions of Directive 2004/109/EC. http://eur-lex.europa.eu/legal- content/EN/TXT/?uri=CELEX:32013L0050 9 European Union (EU), plus Iceland, Liechtenstein and Norway. 10 Gov.uk, “Extractive industries reporting: draft schema and step by step guide”, https://www.gov.uk/government/news/extractive- industries-reporting-draft-schema-and-step-by-step-guide 11 For an English version, see http://www.publishwhatyoupay.no/nb/node/16414 12 Statoil, “2014 Payments to Governments”, http://www.statoil.com/no/InvestorCentre/AnnualReport/AnnualReport2014/Documents/DownloadCentreFiles/01_KeyDownloads/2014 %20Payments%20to%20governments.pdf

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Last month, the Parliament decided to strengthen the country-by-country regulation, by extending it to include reporting from tax havens.13

In Canada, the Extractive Sector Transparency Measures Act (ESTMA) was passed into law last year, and came into force on 1 June 2015. Like the EU Directives, it requires public and private oil, gas and mining companies in Canada to publish the payments they make to governments around the world. Given the significance of mining to the Canadian economy, it is perhaps the closest parallel to Australia. Canadian mining companies have been active in their support for mandatory disclosure regulations, notably through the Mining Association of Canada (MAC) and the Prospectors and Developers Association of Canada (PDAC)’s participation in the Resource Revenue Transparency Working Group.14 Currently, the details regarding the reporting requirements are being finalised in the multi-stakeholder ‘Administrative Guidance Working Group’, of which PWYP Canada is a part.

The United States adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act into law in 2010. Section 1504 of this Act, entitled Disclosure of Payments by Resource Extraction Issuers, stipulates that companies must publicly disclose payments to all levels of governments on a project- by-project and country-by-country basis. The Securities and Exchange Commission (SEC) is now required to write an implementing rule. PWYP is actively working with the SEC to encourage the Commission to reopen the rule writing and reissue a rule which is as strong as the EU Directives.

Switzerland, too, is developing its own revenue transparency laws. The draft revision of the Code of Obligations (stock corporation law),15 was published for public consultation this spring and will be considered by Swiss Parliament later this year. It also mirrors the requirements of the EU Directives and obliges project- level reporting by all listed and large unlisted companies in Switzerland, for all extractive activities around the world. Switzerland is the world’s leading commodities trading hub, accounting for about 35% of global crude oil trade and 60% of trade in metals and minerals. For this reason, the draft law also includes a provision that would give the Swiss Government the authority to extend the regulation to commodity trading companies if other commodity trading hubs do the same.

13 For details about the strengthened country-by-country regulation, see: http://www.publishwhatyoupay.no/en/node/16781 14 For more information, see http://www.pwyp.ca/en/issues/transparency-working-group 15 Summary at http://www.ejpd.admin.ch/ejpd/fr/home/aktuell/news/2014/2014-11-28.html , also see articles 964a-964f (French, German and Italian only) http://www.ejpd.admin.ch/dam/data/bj/wirtschaft/gesetzgebung/aktienrechtsrevision14/vn-ber-f.pdf

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What features of other nations’ mandatory reporting regimes for extractive industries companies are important in ensuring consistency in Australia?

Maintaining consistency between Australia’s mandatory reporting regime and other comparable jurisdictions is crucial to ensuring that it will be sustainable, meaningful and beneficial to all. Both extractives industries companies and civil society organisations advocate for this so as to reduce administrative burden and increase comparability. Chief Financial Officer of Rio Tinto, Chris Lynch, has stated that “Rio Tinto encourages governments to work together to adopt a consistent global approach and establish disclosure requirements and thresholds that are proportionate. Otherwise, global companies will face multiple reporting requirements. A multitude of different reporting formats is unlikely to result in greater clarity or comparability”16 Definitions contained within the legislation should include a project definition similar to that included in the EU Accounting Directive as referenced earlier.17

Legislation should include an account of all the payment types expected to be reported on and a low financial threshold for reporting, along with any activities that result in payment and payments to government entities in line with the EU directives and Canadian legislation. For a mandatory reporting regime to be comprehensive, fair and transparent, it is important that no country exemptions are permitted and to have effective, proportionate and dissuasive sanctions for misreporting or non-disclosure.

Lastly, PWYP Australia, PWYP International and TJN-Aus advocate for free and publicly available information. Stipulating that companies report in an open and machine readable format guarantees consistency across companies in their reporting, ensuring that the data collected is consistent, comparable and usable.

Are there any other benefits or costs to Australia implementing a mandatory reporting regime for payments to governments by Australian extractive industries companies?

Extractive companies already keep records for themselves and their subsidiaries, including project- level data, under existing securities laws, to comply with national anti-bribery statutes, and for their internal accounts. In terms of compliance costs, companies already collect and track the data that

16 P. 1 Taxes paid in 2013 A report on the economic contribution made by Rio Tinto to public finances http://www.riotinto.com/documents/RT_taxes_paid_in_2013.pdf 17 Accounting Directive, Article 41(4).

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would need to be disclosed. They keep books and records for themselves and their subsidiaries under existing securities laws, to comply with national anti-bribery statutes and for their internal accounts. In a submission to the SEC, Canadian company Barrick Gold estimated that “As a percentage of Barrick Gold’s total assets, initial compliance costs are estimated to be 0.002% ($500,000/$25,075,000,000).”18

65 per cent of the global extractive market is covered by existing project level payment disclosure requirements, including companies that represent just under $300 billion in market capitalisation on the Australian Securities Exchange; there is in fact the risk in the near term that Australian issuers will attract less investment if they do not disclose comparable data.19 Australia is now one of the few Western major economies which has not committed to implementing mandatory disclosure requirements for the extractives industries. Payment disclosure is required in all major extractive markets in order to level the playing field and to protect those companies that act within the law from unfair competition and potential accusations of corruption that could lead to reputational damage.

PWYP Australia and TJN-Aus recommend the create legislation that aligns with the emerging global standard and which requires mining and oil and gas companies listed or based in Australia to report all payments made to governments on a country-by-country and project- by-project basis. PWYP would be pleased to work with and support the Australian Labor Party on the creation of a parliamentary bill to this effect. The Resource Revenue Transparency Working Group referred to earlier was established in Canada during the development of their legislation. Working under a Memorandum of Understanding, the Working Group collaborated to form recommendations to Canadian provincial and federal government to advise the formation of a mandatory payment reporting regime with success. PWYP believe a similar multi stakeholder approach to the formation of legislation in Australia would be of benefit. As a major mining nation, it is important that Australia shows leadership in the region by adopting country-by-country and project-by-project reporting requirements for extractive companies. We strongly encourage the Australian Labor Party to recognise the global momentum and give our recommendation its utmost

18 Page 184: www.sec.gov/rules/final/2012/34-67717.pdf. The SEC notes that the figure of USD 400 ‘is the rate we use to estimate outside professional costs for purposes of the PRA. Although we believe actual internal costs may be less in many instances, we are using this rate to arrive at a conservative estimate of hourly compliance costs.’ 19 PWYP Australia, Australia: An Unlevel Playing Field - Extractive industry transparency on the ASX 200, May 2013

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consideration. We would welcome the opportunity to meet with you at your convenience to discuss our submission further.

Yours sincerely,

Jessie Cato Coordinator, Publish What You Pay Australia Email: [email protected]

Dr Mark Zirnsak Tax Justice Network Australia E-mail: [email protected]

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Background to Publish What You Pay Australia

Publish What You Pay is a global campaign for transparency and accountability in the mining and oil and gas industries. In Australia, the campaign is supported by a coalition of organisations that are committed to promoting good governance in resource-rich countries to ensure that citizens benefit equitably from their natural wealth, including through advocacy for the mandatory disclosure of all payments made between extractive industry companies and governments on a country-by-country and project-by-project basis.

The current members of Publish What You Pay Australia are:

 Action Aid Australia  Aid Watch  Anglican Overseas Aid  Australian Conservation Foundation  Australian Council for International Development  A Billion Little Stones  Burma Campaign Australia  Caritas Australia  Catholic Mission  ChildFund Australia  Columban Mission Institute  Conservation Council of Western Australia  CFMEU – Mining and Energy  CAER – Corporate Analysis. Enhanced Responsibility  Economists at Large  Friends of the Earth Australia  Global Poverty Project  Greenpeace Australia Pacific  Human Rights Law Centre  Jubilee Australia  Mineral Policy Institute  Oaktree Foundation  Oxfam Australia  Search Foundation  SJ Around The Bay  Tear Australia  Transparency International Australia  Union Aid Abroad – APHEDA  Uniting Church in Australia – Synod of Victoria and Tasmania  World Vision Australia

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Background to the Tax Justice Network Australia

The Tax Justice Network Australia (TJN-Aus) is the Australian branch of the Tax Justice Network (TJN). TJN is an independent organisation launched in the British Houses of Parliament in March 2003. It is dedicated to high-level research, analysis and advocacy in the field of tax and regulation. TJN works to map, analyse and explain the role of taxation and the harmful impacts of tax evasion, tax avoidance, tax competition and tax havens. TJN’s objective is to encourage reform at the global and national levels.

The Tax Justice Network aims to:

(a) promote sustainable finance for development;

(b) promote international co-operation on tax regulation and tax related crimes;

(c) oppose tax havens;

(d) promote progressive and equitable taxation;

(e) promote corporate responsibility and accountability; and

(f) promote tax compliance and a culture of responsibility.

In Australia the current members of TJN-Aus are

 ActionAid Australia  Aid/Watch  Australian Council for International Development (ACFID)  Australian Council of Trade Unions (ACTU)  Australian Education Union  Anglican Overseas Aid  Baptist World Aid  Caritas Australia  Columban Mission Institute, Centre for Peace Ecology and Justice|  Friends of the Earth  Global Poverty Project  Greenpeace Australia Pacific  Jubilee Australia  National Tertiary Education Union  Nurses and Midwives’  Oaktree Foundation  Oxfam Australia  Save the Children Australia  SEARCH Foundation  SJ around the Bay  Social Policy Connections

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 Synod of Victoria and Tasmania, Uniting Church in Australia  TEAR Australia  Union Aid Abroad – APHEDA  UnitedVoice  UnitingWorld  UnitingJustice  Victorian Trades Hall Council  World Vision Australia

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