The Extractive Sector Transparency Measures Act (ESTMA), which came into force June 1, 2015, introduced new reporting and transparency requirements for Canadian companies involved in the mineral exploration and extractive field, contributing to global efforts against corruption in this sector.
For most listed Canadian mining companies, May 30, 2017, will be the first reporting deadline where they have to report specific payments totalling $100,000 or more made to all levels of local or foreign government related to the commercial development of oil, gas or minerals. But, the requirement to report on payments made to indigenous governments in Canada was deferred until June 1, 2017. This means that payments made after this date will have to be tracked and picked up on any subsequent reports. To assist companies, Natural Resources Canada (NRCan) has published an information sheet on payments to indigenous governments on their website.
When new rules take effect it can be intimidating to implement them correctly the first time, and to set up systems that will make future reporting easy. Fortunately, NRCan already has some public reports published that could be useful to review on its website. The department is also very open to discussions and helping extractive companies navigate any challenges. That said, companies should be aware of the commonly asked questions and issues that are already being raised.
What do I need to do if I do not have any payments to report, or if all my payments fall below the reporting threshold?
Reporting entities with nothing to report are asked to notify NRCan via email that no report is being filed.
How do I deal with the issue of reporting in foreign currency?
Reporting entities should disclose the primary reporting currency of their report as well as the foreign exchange rate and method of conversion when converting foreign currency amounts.
How should we deal with refunds of amounts previously paid?
ESTMA requires reporting all amounts paid and there is no requirement to report on refunds of amounts previously paid. Reporting entities are free to disclose refunds in the notes section of the report if they feel it is relevant.
How do I deal with reporting when a subsidiary is disposed of during the reporting period?
Assuming the subsidiary is controlled by a reporting entity, it would likely be responsible for reporting payments. The ESTMA states that “a payment made by an entity that is controlled by another entity is deemed to have been made by the controlling entity.” As a result, the controlling parent would be responsible for reporting payments made by the controlled subsidiary for the period where the subsidiary was controlled.
These transparency reporting measures are not unique to Canada. Here are some issues being experienced by the industry in implementing similar regimes:
- Globally, there is an emerging trend to provide a transparency report that not only addresses mandatory requirements for reporting payments made to governments but also addresses voluntary disclosures on areas such as tax.
- Companies at the forefront of this trend see this as an opportunity to manage their message and context around payments and clearly communicate economic benefits to key stakeholders.
- Companies need to pay special attention to the implications of disclosing information that was previously not in the public domain.
The clock is ticking to get these reports submitted and non-compliance is not an option due to the potential of significant penalties, so we would urge companies to consult with their advisors or NRCan on any questions.
Michael Sabatino is Tax Services Associate Partner at EY. Rabinder Sihota is Tax Services Senior Manager at EY.