Reports on Payments to Governments: Chapter 10, EU Accounting Directive

Reports on Payments to Governments: Chapter 10, E...

The UK Department for Business Innovation and Skills has released updated draft legislation to implement Chapter 10 of the EU Accounting Directive.



KPMG in the UK


Also on

Various Coins Image Filling

The UK Department for Business Innovation and Skills has released updated draft legislation to implement Chapter 10 of the EU Accounting Directive. The legislation introduces country by country reporting for UK extractive companies or groups of tax payments to governments. Payments include corporate taxes, royalties, licence fees, production entitlements, bonuses, dividends and infrastructure payments.

The legislation, published on Thursday 21 August 2014, follows the initial draft published in March 2014 and the consultation process. The industry working group are drafting guidance to the legislation, which will also be published in due course and is expected to be endorsed by BIS.

The Chapter 10 requirements will pose a significant compliance burden on extractive companies and groups as it requires country by country reporting of all cash payments by project and by receiving government.

Challenges in the application of the requirements include:

  • understanding which entities are required to report and whether consolidated reports may be prepared;
  • defining projects and aligning these with existing accounting and reporting systems;
  • defining payments to be reported in each country; and identifying all relevant government bodies and third parties.


The EU Accounting Directive was enacted in June 2013 and all EU member states are required to implement the regulations by July 2015.It is one of a number of proposals for the reporting of tax and financial data for oil and gas companies. The Extractive Industries Transparency Initiative (EITI), established in 2002, was seen as the first driver for greater transparency in the industry. The UK is expected to implement EITI reporting over the course of the next 12 months and will require UK oil and gas companies to report taxes paid to an independent reconciler.

The Dodd Frank Act Section 1504 aims to introduce reporting requirements for SEC registered extractives by the US. The draft rules are currently being redrafted following successful litigation.

This year the OECD will be finalising a framework that will require all multinationals operating in OECD or G20 countries to report financial and tax information on a country by country basis to tax authorities as part of the Base Erosion Profit Shifting action plan.

Scope of legislation

The UK implementation requires UK companies to report payments to governments if they:

  • Undertake an activity involving exploration, prospection, development and extraction of minerals or oil and gas, or the logging of primary forests;


  • Are listed on the London Stock Exchange; and/or
  • Fulfil two of the following criteria:

     1. Balance sheet of more than £18 million;

     2. Net turnover of more than £36 million;

     3. Average number of employees during the financial year to which the   balance sheet relates exceeds 250.

UK groups or sub groups are required to prepare consolidated reports if:

  • The UK parent is large or listed (see definitions above);
  • Any member of the subgroup is a company engaged in extractive activities; and
  • The subgroup is obliged to prepare consolidated group accounts.

Exemptions apply to small or medium sized groups or UK subgroups ultimately owned by an EU company.

Some observations in respect of the legislation:

  • Groups that are ‘obliged’ to prepare consolidated accounts are permitted to produce a consolidated Chapter 10 report. It is not clear whether UK subgroups voluntarily produce consolidated accounts can benefit from consolidated reporting.
  • The EU Transparency Directive is expected to be introduced shortly which may introduce the reporting requirement for non-UK registered companies that are either UK listed or are UK tax resident.
  • The application of the draft legislation to oil and gas service companies is not clear although we understand that the guidance will consider this in detail.


The rules will apply for financial years commencing on or after 1 January 2015. The reporting deadline is 11 months after the year end. Therefore groups with a December year end will be required to file before 30 November 2016. Where groups will report UK figures in another EU member state as part of consolidated reporting a grace period of one year is given to allow for later implementation in those countries. This is a response to industry lobbying and avoids UK companies needing to prepare a one off report to the UK Government in respect of 2015.

Other EU Member States will be implementing the Chapter 10 requirements over the next year and it will be important to monitor and understand any differences in local legislation.

Further information

To discuss any of the above, please contact us, and also see The Reports on Payments to Governments Regulations 2014.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

Connect with us


Request for proposal



KPMG’s new-look website

KPMG’s new-look website