by Javier Pereira
The European Parliaments Legal Affairs committee has voted for a requirement for country-by-country reporting of payments to governments in the banking, construction and telecommunications sectors. This is a crucial step that comes on top of the requirement for extractive and logging industries to report on a country-by-country and project-by-project basis.
Transparency on the revenues generated would enable citizens in such countries to hold their governments to account for the use of those revenues for the public good. In 2010, greenfield investments (start-ups) in these five sectors were worth $235bn. The biggest sector was extractive and logging industries with $76bn, followed by communications ($72bn), the financial and banking industries ($46bn) and construction ($41bn). On average, 63% of these flows targeted developing countries.
By expanding the coverage to other sectors, the EP has essentially covered the biggest and most problematic industries in developing countries. In addition to enabling citizens to scrutinise government budgets and increasing domestic accountability, country-by-country reporting of payments in these three additional sectors will have significant benefits in developing countries and beyond.
The selling of licenses at undervalued prices in developing countries is one of the most common corruption related problems associated with the extractive industries, but it is also common place in other sectors such as the telecommunications industry. In India the rigged sale of part of the mobile phone spectrum is believed to have cost the government $8 billion to $20 billion. Country-by-country reporting of payments for licenses and concessions would, also help expose where payments are suspiciously low, which would indicate that an official might have been bribed.
In addition, reporting of payments to governments would also reveal if a company’s tax payments were extremely low relative to their operations which could suggest corruption in offering of tax concessions, tax evasion or simply inappropriate taxation policies. Such reporting would reveal all the countries where firms have a trading presence which would serve a number of other purposes.
Country-by-country reporting of payments in countries where these firms have significant operations would help to tackle numerous problems. However, the impact of the legislation could be significantly increased if companies were also asked to report other contextual information in the countries where they operate. As Eurodad and other have shown, contextual information such as profits/losses and turnover, would help to address tax evasion and help investors and authorities to better assess systematic risks. Both the opinion of the Economic Affairs and the Development Committee in the European Parliament submitted amendments requesting this information to be disclosed. A mandate to review the directive with views to include additional financial information is currently expressed in recital 33 of the Directive. Although it is a missed opportunity that the European Parliament has not been more ambitious in this regard, the review of the directive in 5 years will provide a great opportunity to take significant steps towards reducing corruption, tackling tax evasion and improving accountability in developing countries.
 Elaborated by Eurodad based on UNCTAD (2012) World Investment Report. Annex tables and database.
 The Economist (2012) India’s telecoms scandal: Megahurts What a scandal says about government and business in India http://www.economist.com/node/21547280
 Jubilee Debt Campaign (2011) The Department for Dodgy Deals. Ending the UK’s support for toxic debt. Available at: http://www.jubileedebtcampaign.org.uk/download.php?id=1030
 The Telegraph, Taxman accused of letting Vodafone off £8 billion. 07, November 2011, Available at: http://www.telegraph.co.uk/news/politics/8875360/Taxman-accused-of-letting-Vodafone-off-8-billion.html#