Non-financial reporting wants to reach a new level of transparency

FERMA urges caution as two European Parliamentary committees propose to extend the scope of non-financial reporting even further to include country-by-country disclosure.

In April 2013, the European Commission released a proposal for a Directive on Non-Financial Reporting (NFR – here), introducing for companies new elements of disclosure on their policies, risks and results on environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues.

Now in the hands of the European Parliament, the Legal Affairs (JURI) and Economic & Monetary Affairs (ECON) Committees have decided to move even further in a series of amendments in September and October 2013.

Pushed by the conclusions of the European Council in May 2013 (here), last page, point i.), that encouraged greater fiscal transparency, they decided to introduce amendments to the proposed Directive that would extend the scope of the non-financial reporting to include country-by-country disclosure.

According to the Parliamentary committees, this means that a company would have to publicly disclose a report annually for each member state and third country in which they operate, containing the name(s), nature of activities and geographical location, turnover, number of employees, pre-tax profit or loss, tax on profit or loss, and public subsidies received.

These requirements were originally introduced in 2011 for the extractive industries and voted June 2013 (here). The trend is now to extend to all sectors the disclosure of all types of payments made to governments in the EU.

For FERMA, regulation should limit disclosure that could affect companies’ competitive advantage, in particular in comparison with non-EU countries. There should be a balance between relevant information provided to shareholders on which to base investment decisions, and the protection of these investments, which requires a certain level of confidentiality. The later includes information on contracts, management, results, level of profitability and agreements with the tax authorities of host countries.

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