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Bringing tax transparency into focus – extractive industries

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Bernard van Gerrevink and Hilde Atsma of KPMG Meijburg & Co and Jenny Wong of KPMG Australia explain why tax transparency is set to become an integral part of ESG disclosures.

While the tax transparency debate was accelerated by the financial crisis of 2007–08 and a public perception that large corporations are not paying their fair share, it has developed into much more than this over the past decade. Various regulatory initiatives, both internationally and domestically, are already in place or gaining support and the debate is additionally impacted by COVID and the pressure on governments to justify rescue packages that have been granted.

The demand for mandatory tax reporting standards is increasing, with a plethora of proposals at regional, national, and global levels. A growing list of voluntary and mandatory initiatives is in place:

  • Action 13 of the OECD’s BEPS Action Plan regarding country-by-country reporting and transfer pricing documentation;

  • The EU Public Country-by-Country Reporting Directive (now formally adopted);

  • Capital Requirements Directive IV;

  • The EU Accounting Directive: Chapter 10;

  • The UK Reports on Payments to Governments Regulations 2014 (complemented by DTR 4.3A of the Financial Conduct Authority's Disclosure and Transparency Rules);

  • The US proposal on public country-by-country reporting and Dodd–Frank Act: Section 1504;

  • The Extractive Industries Transparency Initiative (EITI) and

  • The Global Reporting Initiative (GRI) Standard 207.

Some countries, such as Australia, have a voluntary tax transparency code but are proposing to move to mandatory public country-by-country reporting, with, as a recent development, the Labor Party winning the federal elections and proposing new tax policies, including the introduction of mandatory country-by-country reporting.

The journey of tax transparency in the world of extractive industries

Extractive industries’ tax transparency is a topic that has had rapid change in recent years. KPMG’s 2021 Global Mining Survey even welcomed “regulatory and compliance changes/burden” as a newcomer in the top 10 list of “Industry identified risks”. These developments are largely attributable to the EITI and the EU directives on accounting and transparency (and all non-sector-specific initiatives mentioned above) and the shift away from confidentially negotiated agreements between nations and extractive companies.

One of the first movers on legislating for increased tax transparency was the UK government, as in 2016 it introduced the requirement for a multinational enterprise (MNE) group with UK operations to publish a tax strategy when it has a turnover above £200 million ($230 million) or a balance sheet over £2 billion. While this tax strategy does not require a huge amount of detail, many companies have chosen to report more extensively and pick up a voluntary standard (e.g., GRI 207) to do so. In addition, the UK has detailed legislative frameworks for reporting payments to government for large groups that undertake mining activities.


In 2002, the groundwork was bedded down for an international standard of reporting in 12 EITI principles. The EITI is a standard that countries can choose to adopt with the goal to achieve revenue transparency and accountability in the sector of extractive industries. Reporting in accordance with the EITI will be mandatory for companies active in an EITI-adopting country. EITI reporting requirements are determined via a multi-stakeholder consultation process by individual countries. A multi-stakeholder group (MSG) of government, companies, investors, civil society organisations, and partner organisations is responsible for the EITI process in each implementing country. The EITI standard provides a reporting framework that requires certain disclosures as well as recommending or encouraging others.

Zoomed in on tax (transparency), Requirement 4.1 of the EITI Standard 2019 requires oil, gas, and mining companies to comprehensively and publicly disclose taxes paid to, and revenues received from, governments. Among others, profit taxes are listed as a revenue stream for governments that will be subject to independent reconciliation to be prepared by governments between company payments and government revenues. Numbers can only be excluded where they are not applicable, or the MSG agrees that their omission will not materially affect the comprehensiveness of the government and company disclosures.

The EITI standard is applicable in over 50 countries that have joined the EITI and 21 oil and gas companies and 36 mining and metals companies that partner with the EITI.

The EU directives on accounting and transparency

In response to international developments in connection with the reporting of payments to governments by the extractive sector – in particular, the inclusion of a requirement to report payments to governments in the Dodd–Frank Act in the US – the European Commission launched the EU directives on accounting and transparency in 2013. With the aim of improving the transparency of payments made to governments by the extractive and logging industry, all taxes levied on the income, production, or profits of companies – excluding taxes levied on consumption such as VAT, personal income taxes, or sales taxes – are mandatory to disclose on a country-by-country basis if they exceed €100,000 ($99,000) (a series of related payments are included as one).

The EU Accounting Directive has introduced a disclosure requirement for payments to governments by listed and large non-listed companies that are respectively registered in the European Economic Area (EEA) and listed on EU-regulated markets (even if they are not registered in the EEA and incorporated in a third country) with activities in the extractive industry and the logging of primary forests. Companies qualify as a large non-listed company if they exceed two of the following three criteria:

  • Total assets of at least €20 million;

  • Turnover of at least €40 million; and

  • 250 or more employees.

Via the EU Transparency Directive, these provisions are extended to every company in the extractive and logging sector listed on EU-recognised stock exchanges, regardless of their registration or incorporation country. The deadline for reporting laid down in the EU directives on accounting and transparency will not exceed 12 months after the company’s financial year end.

These directives exemplify the widespread support there is for initiatives such as the EITI.


GRI 11: Oil and Gas Sector standard

The oil and gas industry is, and has been, the subject of investor and activist interest from an environmental, social, and governance (ESG) reporting perspective. This is no different in the world of the GRI. On October 5 2021, the GRI published its first GRI sector standard, GRI 11: Oil and Gas Sector. It provides guidance on reporting on 22 topics that the GRI has considered likely to be material for the sector and ensures comprehensive disclosures on greenhouse gas emissions. The topics include climate adaption, forced labour and modern slavery, economic impacts, and payments to governments, reflecting the most pressing challenges for sustainable development in the extractive industries. The sector standard is effective for reports or materials published on or after January 1 2023.

The group must use GRI 11 and determine if each of the topics listed is material for reporting. When payments to governments are determined to be a material topic, GRI 11 lists GRI 207: Tax 2019 as the relevant topic-specific standard to use for disclosure. Moreover, it adds “additional sector recommendations” that consider the work that the EITI has done on reporting other payments to government. As the extractive industry tends to make payments to government via more than simply paying taxes, the EITI (Requirement 4.1) requires, and GRI 11 recommends, reporting on “a breakdown of the payments to governments per revenue stream”, as each revenue stream may be small individually, but collectively may be a significant contribution to government. These revenue streams may include:

  • The host government’s production entitlement;

  • National state-owned company production, royalties, dividends, bonuses (e.g., signature, discovery, and production bonuses);

  • Licence fees;

  • Rental fees;

  • Entry fees; and

  • Other considerations for licences or concessions, any other significant payments, and material benefits to government.

GRI 207: Tax 2019

Another important development in the enhancement of tax transparency has been GRI 207. This part of the GRI initiative is focused on tax disclosure and was developed in recognition of the vital role that tax contributions play in sustainable development, and in response to widespread stakeholder demands for tax transparency. It sets expectations for the disclosure of tax payments on a country-by-country basis, alongside tax strategy and governance.

As GRI 207 became effective from January 1 2021, the identification of MNEs that are in the process of complying with GRI 207-4 – which requires country-by-country reporting of, for example, corporate taxes accrued and paid on a cash basis – is in the early stages.

The standard is voluntary for most but virtually mandatory for some. This is because of requirements imposed on members by some international organisations such as the International Council on Mining and Metals and its performance expectations of members to comply with the GRI standards. Therefore, it is common to see larger players in the minerals industry produce detailed disclosures in relation to the GRI standards, although KPMG has seen an increasing number of non-mining companies benchmarking themselves against the GRI in the most recent annual reports released.

A more detailed insight into tax transparency and GRI 207 can be found here.

Ready for the future

As public country-by-country reporting will become a reality for MNEs that operate in the EU and have a consolidated net turnover of at least €750 million as of 2025, the decisions around becoming more tax transparent about more than just country-by-country figures are inevitably on the horizon in the upcoming years. The authors believe that this consideration will be on the agenda of all organisations at some point – maybe sooner rather than later. Additional action by governments on enhanced tax reporting is also likely. This will be a significant consideration for MNEs as they consider compliance with new disclosure rules and the appropriateness or necessity of supplementary tax information.

One example of this possible future government action can be found in the United States. A bill that was passed by the US House of Representatives in 2021 would require public companies with a consolidated revenue above a certain amount (likely similar to the EU country-by-country threshold of €750 million) to disclose country-by-country financial information, including “total income tax paid on a cash basis to all tax jurisdictions”. Should the Disclosure of Tax Havens and Offshoring Act, contained within the ESG Disclosure Simplification Act of 2021, be considered and passed by the US Senate and then signed by the US president, the bill will become law.

A recent benchmark study conducted by KPMG on the top 50 companies (based on market capitalisation) in the extractives industry worldwide shows the industry is well under way on the road of tax transparency, but also shows there is – logically – room for growth. Of those surveyed, around 94% of these companies mention the GRI in their financial reporting and around 26% are listed on the EITI website as an EITI endorsing company. Half of those surveyed publish some numbers on a country-by-country basis; however, these numbers mostly relate to employee data as less than 40% of companies publish their corporate income taxes paid per country and less than 20% publish their corporate income taxes accrued per country.


Many of the tax transparency initiatives mentioned in this article have linkages with the 17 Sustainable Development Goals (SDGs) designed by the UN in 2015. Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It has been recognised by the UN that taxes play a vital role in achieving sustainable development and should do so even more in the future. Tax runs through everything and coincides with issues such as corporate social responsibility, stakeholder engagement, and long-term sustainable value creation.

Tax is no longer a purely legal and financial matter intended for lawyers, tax specialists, and tax advisers. Tax systems, including tax laws and regulations, need to be further improved to achieve the 17 UN SDGs (by 2030). A report was published by the OECD in 2018 that also recommends this, and, similarly, there was a 2018 position paper by the International Chamber of Commerce that called for an alignment of the international tax system with the SDGs. The GRI also makes a direct connection to the SDGs; namely, No. 1 (fighting poverty), No. 10 (reducing inequality), and No. 17 (global partnership to achieve goals). No. 16 also stands out (promoting peace, justice, and public services), which also explicitly mentions tax avoidance.

In the corporate and public playing field, important steps are being taken to implement (tax) transparency further as a core item in the world of doing business. Companies taking steps in the journey towards tax transparency can benefit from a positive impact on their label as a good corporate citizen, as detailed reporting can inform stakeholders and improve their confidence in resource-rich countries, build trust, and contribute to a broader discussion on tax transparency. Major international companies in the extractive industry have the potential to influence transparency norms worldwide.

As the expectations of tax transparency are rapidly changing, organisations, now more than ever, need to be able to demonstrate a robust tax performance and governance framework to address these demands. With the KPMG Tax Control Room, KPMG can assist clients with a cloud-based solution to deliver value across their business. Ensuring that the collection of tax contribution information is data driven, automated where possible, and relies on minimal manual input will likely be necessary to future-proof reporting, and KPMG’s Tax Footprint Analyzer can help. Find out more here.

KPMG professionals from around the world can help your tax department to inform stakeholders of your business’s approach to tax, use data-driven methodologies to help to accurately compile information on your tax footprint, provide guidance for compliance with tax transparency standards and changes, and use leading technology solutions to support your business on its journey. KPMG can help to make sure you are ready.

Read the full article on KPMG’s website

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