Payments to governments disclosure requirements for the extractive industries

This guide was last updated in September 2015

The new reporting requirements apply to businesses involved in the extractive and forestry industries, and came into force on 1 December 2014 for financial years beginning on or after 1 January 2015. The report, called a PTG report must be delivered, electronically, to Companies House within 11 months of the end of the financial year.

The regulations implemented the requirements of the EU's Accountancy and Transparency Directives into UK law. These requirements came into force EU-wide on 1 July 2015. Subsidiaries of parent companies that are obliged to prepare consolidated group accounts in member states other than the UK do not need to prepare a report until the financial year beginning on or after 1 January 2016.

Which businesses are subject to the requirements?

The regulations apply to undertakings which are active in the extractive or forestry industries, and which are either:

• large – defined as meeting two of the following three criteria - balance sheet total more than £18 million, net turnover more than £36m, or more than 250 employees on average during the relevant financial year;
• public interest entities – defined as listed companies, credit institutions and insurance undertakings.

Undertakings include companies and partnerships. Parent undertakings are required to prepare a consolidated PTG report if they or any of their subsidiaries meet the above criteria.

Any business that is involved in primary forestry or activities involving the exploration, prospection, discovery, development or extraction of minerals, oils, natural gas deposits or other materials needs to consider the application of the regulations to its business.

There is an exemption from the reporting obligation for subsidiary undertakings if payments to governments made by them are included in a consolidated PTG report drawn up by a parent undertaking. There are additional exemptions applicable to certain small and medium-sized groups; for a parent undertaking where the parent is itself a subsidiary of another undertaking governed by the law of another EU member state; and where equivalent reporting requirements exist.

What information needs to be included in the report?

The regulations require undertakings to report specific payments, whether in money or in kind, to governments.

The list of specific payments to be reported includes certain taxes; production entitlements; licence and concession fees; and payments for infrastructure improvements.

The term 'government' means any national, regional or local authority of a country, and includes a department, agency or undertaking that is a subsidiary undertaking where the authority is the parent undertaking. Therefore, some payments to state-owned undertakings may be caught.

The report must include the following information:

• the government to which each payment has been made, including the country of that government;
• the total amount of the payments made;
• the total amount per type of payment made;
• where these payments have been attributed to a specific project, the total amount per type of payment made for each project and the total amount of payments for each project.

Payments below a threshold of £86,000 do not have to be reported if the payment relates to a single obligation and is not part of any related series of payments. For example, a single payment of £75,000 for a licence in a year would not need to be reported; but a series of four quarterly payments of £25,000 each for a single licence would need to be reported in aggregate.

Similarly, a single tax payment of £75,000 would not need to be reported; but if an additional payment of £15,000 for the same tax obligation was paid in the same year then the total amount would have to be reported in aggregate.

Who must approve the report?

The directors, members or partners of the undertaking.

Where should the report by published?

Undertakings are required to submit the PTG report electronically to Companies House, within 11 months of the end of their financial year.

What are the sanctions for non-compliance?

If Companies House becomes aware of a missing or incomplete PTG report, the undertaking will be asked to comply within 28 days. If applicable, they may instead confirm that a report is not necessary, that they have reported through a parent undertaking or, if they are subject to equivalent reporting requirements, that the matters have been reported in accordance with that equivalent regime.

Should the undertaking then fail to complete the PTG report, or if the report is inaccurate, both the undertaking and its directors could be subject to a criminal conviction and either a fine or imprisonment.