The publication of the first UK EITI Report on 15 April covering 2014 comes two weeks after the Panama paper revelations and less than a month before David Cameron’s anti-corruption summit. The report forms a key milestone in the UK evolving narrative in the tax transparency agenda from its leadership in setting up the EITI back in 2002, to supporting the EU country-by-country reporting, to committing to implement the EITI in 2013, to placing tax and transparency at the centre of the G8 summit in 2013, to committing to set up a beneficial ownership register by the end of 2016. Whilst it is an impressive list of leadership, the report shows that there is still some way to go to provide a clear and full picture of its sizeable oil, gas and mining sector.
Scandals such as Unaoil and what was revealed in the Panama papers show how important transparency is, especially in the time of low commodity prices, when the revenue is more precious.
Report points to need to sort of tax confidentiality issues
The report provides for the first time a holistic picture of how the sector operates in terms of the fiscal and legal environment, the licenses, production, payments and contribution to the whole economy. These vary considerably from oil and gas, to mining and quarrying.
It reveals how the £3.23 bn (USD 4.6bn) revenue in 2014 is broken down between taxes, license fees and other payments; by license and oil field where applicable; and amongst the individual oil, gas, mining and quarrying companies. Oil and gas accounts for over 98% of revenues from the sector, with revenue from the mining and quarrying sector spread amongst many small companies. The BG Group (which was recently bought by Shell) was the largest single taxpayer (£646m – USD 926m). Shell and BP were net recipients due to tax refunds from previous years. Oil and gas production was worth over £14bn (USD 20bn) as recently as 2008/09.
The report only managed to reconcile £2.43 bn of that with the companies payments mainly because six oil and gas companies did not report their tax payments. The UK Government’s tax authority determined that they could not be forced to do so.
Progress still required on beneficial ownership
The report highlights the importance of the Prime Minister’s announcement to develop a beneficial ownership register which is due to be established by the end of this year. Most of the reporting companies are publicly listed companies.
However, only one of the 13 privately-owned companies in the report disclosed a beneficial owner, and no company disclosed ownership by a politically exposed person (PEP).
In order to address challenges of tax justice, it is important that beneficial ownership is not just revealed in OECD but in other countries in which revenues are generated – often resource rich countries like the 51 implementing the EITI.
As the Economist wrote: “Cleaning up tax havens will not end graft. The prime responsibility for this lies with national governments, many of which should do more to make their finances transparent and their safeguards against cronyism stringent”.
EITI implementing countries are required to disclose the beneficial ownership of companies operating in the oil, gas and mining sectors by 1 January 2020. Many of those countries will be looking to the UK for leadership in this area.