The Crown published a draft of its newest proposals on reporting obligations for companies, which it plans on bringing into force on 1 December 2014. The Regulation is designed to implement EU Directive 2013/34 – see here.
In a nutshell (with a few exemptions), where a company is a “large undertaking or a public interest entity” or a “mining or quarrying or logging undertaking”, its directors must submit a report for each financial year on all payments made by the company to any government worldwide. This report must be filed at Companies House within 11 months from the company’s financial year end.
A “large undertaking” is defined as an undertaking that meets at least two of the three following criteria—
(a) its balance sheet total exceeds £18 million;
(b) its net turnover exceeds £36 million;
(c) the average number of employees exceeds 250;
while a “public interest entity” means essentially an insurance undertaking, banks or any entity whose shares are publicly tradable on a regulated market (including AIM) on any EU member state.
The definition of “undertaking” is fairly wide and includes (among other things) Scottish limited partnerships, where the general partner is a limited company.
The report must detail the amount and type of any payment as well as the project to which it was linked. If a payment is not attributable to any specific project, the payment must still be declared.
As a de minimis rule, payments below £86,000 (or payments belonging to the same transaction and not exceeding £86,000) do not have to be reported. A provision prevents artificially splitting and structuring payments to make them fall under the de minimis rule.
The reporting obligation covers consolidated accounts as well. Additionally, the Regulation makes provisions for Companies House to chase companies on their reporting obligation and for obtaining court orders to enforce this obligation. Members of the undertaking can likewise go to court to force the directors to comply. Failure to prepare truthful reports and file them within the statutory timeframe is a criminal offence.
It is thought that this Regulation falls in line with the attempt of various EU member states to crack down on corruption and provide greater transparency with regard to payments and lobbying-gifts made by large corporations to governments and local authorities. While this is generally commendable, it won’t ease administrative burdens or reduce compliance costs for companies. Some might also argue that it indicates a stronger desire of the state to get insights into the finances and workings of large undertakings, potentially with a view to further regulatory intrusion.
However, if fines are to be avoided, the catchphrase is “compliance, compliance, compliance”.
On November 5, 2014