Canada signs on to tighter rules on companies' foreign payments

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Canada is joining a list of countries pushing resource companies for more disclosure about payments to foreign governments. But there is a growing debate about how complex the global system will become, how measures will be implemented, and whether they will provide enough useful information.

International development organizations have been demanding greater disclosure of these payments for years, arguing it's a way of fighting corruption in developing countries. They also hoped the information would offer insights into the actual contributions these companies make to the countries where they operate.

The U.S. and the European Union have already adopted measures requiring extractive firms to report taxes, royalties and other fees paid to foreign governments. The U.S. rules have only recently taken effect and the EU's directive has yet to be fully implemented.

Prime Minister Stephen Harper announced Wednesday that Canada plans to develop similar reporting standards for Canadian mining and energy companies.

Canada's "participation will help transform the way industry reports payments worldwide," Mr. Harper said after meeting a group of business leaders in London, the first stop on a short European tour leading up to the G8 summit next week in Northern Ireland.

British Prime Minister David Cameron, who is chairing the G8 meeting, has made transparency and tax avoidance top issues for the gathering.

Mr. Harper also announced that Canada will also work, on behalf of the G8, with Peru and Tanzania to help those countries improve transparency in their oil, gas and mining sectors by improving their tax systems, auditing functions and collection of royalties.

It's not clear what the new reporting measures will entail. The federal government said it intends to work with the provinces, industry, First Nations and other groups to develop regulations.

Canada's move was welcomed by industry and non-profit groups.

"This is a really important step forward," said Tony Hodge, President International of the Council on Mining and Metals, who was among the business people who met with Mr. Harper on Wednesday. Mr. Hodge said Canada was wise to work with the provinces, including provincial securities regulators, and First Nations since they play crucial roles in the mining sector. "This is going to lead to better information."

Oxfam also praised the initiative, saying "mandatory reporting should help ensure that the public in developing countries has the information to hold government to account."

Several major mining companies have also welcomed these moves, saying they are committed to more transparency and are already reporting some of this information voluntarily. The Mining Association of Canada has been working with the Revenue Watch Institute on reporting rules and globally the industry set up the Extractive Industries Transparency Initiative, EITI, years ago. Under EITI, companies voluntarily disclose payments to governments, and governments disclose the money they receive. The figures are audited independently to detect any discrepancies. So far 20 countries, including Peru and Tanzania, participate in EITI.

But there are concerns among industry players that with so many countries adopting reporting rules, there will be contradictions and complexities. For example, the EU requires companies to report payments from all licensed projects. However, many projects have multiple licences, making the reporting voluminous and likely incomprehensible. The U.S. rules require reporting by project, but the definition of what constitutes a "project" remains unclear.

London-based Rio Tinto PLC said it welcomes Canada's announcement, but emphasized it "would like to see a consistent global standard that creates a level playing field. That legislation needs to keep the reporting burden on business manageable, and fit for the purpose intended – to fight corruption and address accountability."

Ross Gallinger, executive director of the Prospectors & Developers Association of Canada, said he was pleased Ottawa plans to consult with the groups involved.

"Companies don't want to keep adjusting their accounting systems for different countries," he said in an interview. "Globally, having alignment in terms of what is going to be reported, when it is going to be reported and the format would be very beneficial."

Toronto-based Barrick Gold Corp. said it supports the principle of resource revenue transparency. Barrick spokesman Andy Lloyd said the world's largest gold producer already reports tax and royalty payments for each country where it operates. Barrick will also adhere to U.S. disclosure rules under the Dodd-Frank Act, he added.

"There will be thousands of lines of data," said one mining executive. "It's hard to see how that will be helpful."

Mr. Hodge said because the EITI process requires governments to report the money they receive, it is a better indicator of corruption. However, he said it is impossible for countries like Canada to force other governments to report payments. The disclosure moves by Canada and others, "are not following up as strongly on anti-corruption as the EITI has," he said, "but it's a step forward."