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Others in the sector are starting to consider the potential benefi ts of being proactive in managing the messaging around their tax contribution, but greater urgency may be required. It is important that all interested parties engage in and inform the debate including regulators, lobbyists, the media and also businesses.


There are several potential answers to the transparency debate. Some companies have supported schemes such as the Extractives Industries Transparency Initiative, or other enhanced disclosures of taxes paid. Such approaches may help to demonstrate the tax contribution made in each country, particularly given the high effective tax rates that often apply to oil and gas production.


Quantifying the contribution made in each country has the potential to be an effective and tangible


way of demonstrating both investment credibility and social responsibility to governments and other stakeholders. This must, of course, be balanced against the undoubted additional effort required to collate and present the necessary information.


The compliance costs can be substantial. For example, the cost of complying with the tax transparency provisions of the US Dodd-Frank Act has been estimated by the SEC to be US$2.5 billion over the fi rst fi ve years.


EU shake-up of regulation


The EU has recently reached an agreement to adopt new tax transparency rules that will impact oil and gas companies.


These will require them to publish details of the payments they make to governments for access


to resources in every country in which they operate. These rules will apply to all payments of at least €100,000 made for each individual resource project, including taxes on income, production and profi ts, royalties, fees and a number of other payments.


A key motivation for the new rules is to highlight the tax received by countries outside the EU, and to make these governments more accountable to their citizens regarding how this money is spent.


The rules will be included in the new EU Accounting Directive and the new EU Transparency Directive. Between these two directives, large companies that are registered in the EU, along with EU listed companies, will be covered if they operate in the extractive or logging sectors.


THE COST OF COMPLYING WITH THE TAX TRANSPARENCY PROVISIONS OF THE US DODD-FRANK ACT HAS BEEN ESTIMATED AT US$2.5 BILLION OVER THE FIRST FIVE YEARS.


© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative, a Swiss entity. All rights reserved.


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TAX TRANSPARENCY


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