The Reports on Payments to Governments Regulations 2014

Made: 28th November 2014

Coming into force: 1st December 2014

The Secretary of State is a Minister designated for the purposes of section 2(2) of the European Communities Act 1972 in relation to the creation, operation, regulation or dissolution of companies and other forms of business organisation .

The Secretary of State makes the following Regulations in exercise of the powers conferred by section 2(2) of the European Communities Act 1972, sections 15 and 17 of the Limited Liability Partnerships Act 2000 and sections 468, 1069 and 1105 of the Companies Act 2006 .

In accordance with paragraph 2(2) of Schedule 2 to the European Communities Act 1972, section 17(4) of the Limited Liability Partnerships Act 2000 and sections 473(3), 1069(3), 1290 and 1292(4) of the Companies Act 2006, a draft of these Regulations has been laid before Parliament and approved by a resolution of each House of Parliament.

Citation and commencement

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• (1) These Regulations may be cited as the Reports on Payments to Governments Regulations 2014.

• (2) These Regulations come into force on 1st December 2014.

Interpretation

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• (1) In these Regulations—

• “the Act” means the Companies Act 2006;

• “affiliated undertakings” means any two or more undertakings within a group;

• “Companies Act accounts” has the meaning given by sections 395(1)(a) and 403(2)(a) of the Act;

• “consolidated report” has the meaning given in regulation 8;

• ...

• “director” means—in relation to a company—a director of the company, and any person occupying in relation to it the position of a director (by whatever name called), andany person in accordance with whose directions or instructions (not being advice given in a professional capacity) the directors of the company are accustomed to act;in relation to a limited liability partnership, a member;in relation to a limited partnership, a general partner; andin relation to a partnership, a partner;

• “electronic means” has the meaning given in section 1168 of the Act;

• “equivalent reporting requirements” are reporting requirements in any country or territory outside the United Kingdom that—are equivalent to the reporting requirements in these Regulations, by virtue of regulation 12ZA(1); orare determined by the Secretary of State to be equivalent to the reporting requirements in these Regulations, in accordance with regulation 12ZA;

• “general partner” has the same meaning as in the Limited Partnerships Act 1907 ;

• “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;

• “group” means a parent undertaking and all its subsidiary undertakings;

• “IAS accounts” has the meaning given in sections 395(1)(b) and 403(1) and (2)(b) of the Act;

• “large undertaking” means an undertaking that meets at least two of the three following criteria—its balance sheet total on its balance sheet date exceeds £18 million;its net turnover on its balance sheet date exceeds £36 million;the average number of employees during the financial year to which the balance sheet relates exceeds 250;

• “limited partnership” means a partnership formed in accordance with the Limited Partnerships Act 1907;

• “logging undertaking” means an undertaking which undertakes in primary forests the activity referred to in the UK Standard Industrial Classification (SIC) by Economic Activity, as set out in Table 1 in the Schedule to these Regulations, issued under section 9 of the Statistics and Registration Services Act 2007 as updated from time to time;

• “mining or quarrying undertaking” means an undertaking which performs any activity involving the exploration, prospection, discovery, development, and extraction of minerals, oil, natural gas deposits or other materials within the activities referred to in the UK Standard Industrial Classification (SIC) by Economic Activity, as set out in Table 2 in the Schedule to these Regulations, issued under section 9 of the Statistics and Registration Services Act 2007 as updated from time to time;

• “net turnover” means the amounts derived from the sale of products and the provision of services after deducting sales rebates and value added tax and other taxes directly linked to turnover;

• “parent undertaking” has the meaning given in the Act...;

• “partnership” means a partnership within the Partnership Act 1890 ;

• “payment” means an amount paid, whether in money or in kind, for relevant activities, where the payment is any of the following types—production entitlements;taxes levied on the income, production or profits of companies, excluding taxes levied on consumption such as value added taxes, personal income taxes or sales taxes;royalties;dividends, other than dividends paid by an undertaking to a government as an ordinary shareholder of that undertaking, where—the dividend is paid to the government on the same terms as to other ordinary shareholders, andthe dividend is not paid in lieu of production entitlements or royalties;signature, discovery and production bonuses;licence fees, rental fees, entry fees and other considerations for licences or concessions; orpayments for infrastructure improvements;

• “primary forest” means a forest of native species, where there is no clearly visible indication of human activities and the ecological processes are not significantly disturbed;

• “project” means the operational activities which—are governed by a single contract, licence, lease, concession or similar legal agreement, andform the basis for payment liabilities with a government;

• “public interest entity” means an undertaking—whose transferable securities are admitted to trading on a UK regulated market;which is a credit institution within the meaning given by Article 4(1)(1) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council, and a CRR firm within the meaning of Article 4(1)(2A) of that Regulation;which would be an insurance undertaking within the meaning of Article 2(1) of Council Directive 91/674/EEC of 19th December 1991 on the annual accounts of insurance undertakings were the United Kingdom a member State;

• “the registrar” has the meaning given in section 1060 of the Act;

• “relevant activities” means—the activity as set out in Table 1 in the Schedule to these Regulations within primary forests; orany activity involving the exploration, prospection, discovery, development, and extraction of minerals, oil, natural gas deposits or other materials, within the activities listed in Table 2 in the Schedule to these Regulations;

• “report” has the meaning given in regulation 4;

• “subsidiary undertaking” has the meaning given in the Act...;

• “transferable securities” has the meaning given by section 1173 of the Act;

• “UK regulated market” has the meaning given by section 1173 of the Act;

• “UK undertaking” means— a limited company;a limited liability partnership;a limited partnership, each of whose general partners is—a limited company,an unlimited company, each of whose members is a limited company,a Scottish partnership which is not a limited partnership, each of whose members is a limited company, ora Scottish partnership which is a limited partnership, each of whose general partners is a limited company;a partnership, each of whose partners is—a limited company,an unlimited company each of whose members is a limited company,a Scottish partnership which is not a limited partnership, each of whose members is a limited company, ora Scottish partnership which is a limited partnership, each of whose general partners is a limited company;an unlimited company, each of whose members is—a limited company,an unlimited company each of whose members is a limited company,a Scottish partnership which is not a limited partnership, each of whose members is a limited company, ora Scottish partnership which is a limited partnership, each of whose general partners is a limited company;

• “undertaking” has the meaning given in the Act.

• (2) The references in paragraphs (c)(i) to (iv), (d)(i) to (iv) and (e)(i) to (iv) of the definition of “UK undertaking” to a limited company, an unlimited company, a Scottish partnership which is not a limited partnership or a Scottish partnership which is a limited partnership include a comparable undertaking incorporated in or formed under the law of a country or territory outside the United Kingdom; and in relation to such an undertaking the references in those paragraphs to the members and general partners are to be construed as references to the members of the undertaking comparable to members or general partners.

• (3) An undertaking which is a large undertaking in a financial year does not cease to be a large undertaking because it no longer meets at least two of the criteria in the definition of “large undertaking” in the following financial year.

• (4) But if a large undertaking ceases to meet at least two of the criteria in the definition of “large undertaking” in two consecutive financial years, it ceases to be a large undertaking on the first day of the financial year immediately following the second of those consecutive years.

• (5) If agreements of the kind referred to in the definition of “project” are substantially interconnected, those agreements are treated for the purposes of these Regulations as a single project.

• (6) For the purpose of paragraph (5), “substantially interconnected” means forming a set of operationally and geographically integrated contracts, licences, leases or concessions or related agreements with substantially similar terms that are signed with a government, giving rise to payment liabilities.

• (7) Such agreements may be governed by a single contract, joint venture, production sharing agreement, or other overarching legal agreement.

Application and transitional provision

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• (1) These Regulations apply in relation to a financial year of a UK undertaking beginning on or after 1st January 2015 subject to paragraph (2).

• (2) These Regulations do not apply in relation to a financial year beginning before 1st January 2016 of a UK undertaking that is a subsidiary undertaking and whose parent undertaking is required to prepare consolidated group accounts in a member State other than the United Kingdom.

PART 1 — REPORT ON PAYMENTS TO GOVERNMENTS

Duty to prepare report on payments to governments

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The directors of a UK undertaking must prepare a report annually on payments made to governments for each financial year of the undertaking (the “report”) if that undertaking is—

• (a) a large undertaking or a public interest entity; and

• (b) a mining or quarrying undertaking or a logging undertaking.

Content of report

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• (1) For each financial year, the report must state the following information in relation to the relevant activities of the UK undertaking —

• (a) the government to which each payment has been made, including the country of that government;

• (b) the total amount of payments made to each government;

• (c) the total amount per type of payment made to each government; and

• (d) where those payments have been attributed to a specific project, the total amount per type of payment made for each such project and the total amount of payments for each such project.

• (2) Where a UK undertaking makes a payment that is not attributable to a specific project, that payment may be disclosed in the report without splitting or disaggregating the payment to allocate it to a specific project.

• (3) A payment need not be taken into account in the report if—

• (a) it is a single payment of an amount less than £86,000, or

• (b) it forms part of a series of related payments within a financial year whose total amount is less than £86,000.

• (4) Payments, activities and projects may not be artificially split or aggregated to avoid the application of these Regulations.

• (5) The disclosure of payments must reflect the substance, rather than the form, of each payment, relevant activity or project concerned.

• (6) Where payments in kind are made to a government, the report must state the value of such payments in kind and, where applicable, the volume of those payments in kind, and the directors must provide supporting notes to explain how the value has been determined.

Exemption for subsidiaries or parent undertakings included in consolidated reports

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The directors of a UK undertaking that is a subsidiary undertaking or a parent undertaking are exempt from preparing a report if the payments to governments made by the UK undertaking are included in the consolidated report drawn up by the parent undertaking in accordance with regulation 8.

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PART 2 — CONSOLIDATED REPORT ON PAYMENTS TO GOVERNMENTS

Duty to prepare a consolidated report

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• (1) The directors of a parent undertaking which is a UK undertaking must prepare a consolidated report annually on payments made to governments for each financial year of the parent undertaking (the “consolidated report”) if that undertaking is—

• (a) a large undertaking or a public interest entity;

• (b) a mining or quarrying undertaking or a logging undertaking; and

• (c) obliged to prepare consolidated group accounts.

• (2) A parent undertaking which is a UK undertaking is a mining or quarrying undertaking or a logging undertaking if any of its subsidiary undertakings is a mining or quarrying undertaking or a logging undertaking.

Content of consolidated report

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• (1) For each financial year, the consolidated report must state the following information in relation to the relevant activities—

• (a) the government to which each payment has been made, including the country of that government;

• (b) the total amount of payments made to each government;

• (c) the total amount per type of payment made to each government; and

• (d) where those payments have been attributed to a specific project, the total amount per type of payment made for each such project and the total amount of payments for each such project.

• (2) In this regulation the relevant activities are those of—

• (a) the parent undertaking; and

• (b) any subsidiary undertaking included in the consolidated group accounts of the parent undertaking.

• (3) Where an undertaking makes a payment that is not attributable to a specific project, that payment may be disclosed in the consolidated report without splitting or disaggregating the payment to allocate it to a specific project.

• (4) A payment need not be taken into account in the consolidated report if—

• (a) it is a single payment of an amount less than £86,000, or

• (b) it forms part of a series of related payments within a financial year whose total amount is less than £86,000.

• (5) Payments, activities and projects may not be artificially split or aggregated to avoid the application of these Regulations.

• (6) The disclosure of payments must reflect the substance, rather than the form, of each payment, relevant activity or project concerned.

• (7) Where payments in kind are made to a government, the consolidated report must state the value of such payments in kind and, where applicable, the volume of those payments in kind, and the directors must provide supporting notes to explain how the value has been determined.

Exemption from duty to prepare a consolidated report

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• (1) The obligation to draw up the consolidated report under regulation 8 does not apply to directors of—

• (a) a parent undertaking of a small group, except where any affiliated undertaking is a public interest entity;

• (b) a parent undertaking of a medium-sized group, except where any affiliated undertaking is a public interest entity;

• (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) A group is a “small group” if it consists of parent and subsidiary undertakings to be included in a consolidated report and which, on a consolidated basis, meets at least two of the three following criteria on the balance sheet date of the parent undertaking—

• (a) its balance sheet total does not exceed £5.1 million net (or £6.1 million gross);

• (b) its net turnover does not exceed £10.2 million net (or £12.2 million gross);

• (c) its average number of employees during the financial year to which the balance sheet date relates does not exceed 50.

• (3) A group is a “medium-sized group” if it is not a small group and consists of parent and subsidiary undertakings to be included in a consolidated report and which, on a consolidated basis, meets at least two of the three following criteria on the balance sheet date of the parent undertaking—

• (a) its balance sheet total does not exceed £18 million net (or £21.6 million gross);

• (b) its net turnover does not exceed £36 million net (or £43.2 million gross);

• (c) its average number of employees during the financial year to which the balance sheet date relates does not exceed 250.

• (4) In relation to the aggregate figures for turnover and balance sheet total—

• “net” means after any set-offs and other adjustments made to eliminate group transactions—in the case of Companies Act accounts, in accordance with regulations under section 404 of the Act,in the case of IAS accounts, in accordance with UK-adopted international accounting standards;

• “gross” means without those set-offs and other adjustments.

• (5) A company may satisfy the criteria contained in paragraph (2) or (3) using either the net or the gross figure.

Exemption from consolidated report

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• (1) Payments made by a subsidiary undertaking may be excluded from the consolidated report where—

• (a) severe long-term restrictions substantially hinder the exercise of the rights of the parent undertaking over the assets or management of that subsidiary undertaking;