The SEC recently adopted final rules under the Dodd-Frank Act that require issuers to disclose payments made to governments if:
The issuer is required to file an annual report with the SEC.
The issuer engages in the commercial development of oil, natural gas, or minerals.
The new disclosure requirements apply to domestic and foreign issuers and to smaller reporting companies that meet the definition of resource extraction issuer.
In addition, the issuer is required to disclose payments made by a subsidiary or another entity controlled by the issuer, which is to be determined by the issuer based on a consideration of all relevant facts and circumstances.
What Must Be Disclosed:
Under the new rules, a resource extraction issuer is required to disclose certain payments made to a foreign government (including subnational governments) or the U.S. government.
Resource extraction issuers need to disclose payments that are:
Made to further the commercial development of oil, natural gas, or minerals.
“not de minimis”
Within the types of payments specified in the rules.
The rules define commercial development of oil, natural gas, or minerals to include exploration, extraction, processing, and export, or the acquisition of a license for any such activity. The rules define “not de minimis” to mean any payment (whether a single payment or a series of related payments) that equals or exceeds $100,000 during the most recent fiscal year.
The types of payments related to commercial development activities that need to be disclosed include taxes, royalties, fees (including license fees), production entitlements, bonuses, dividends, and infrastructure improvements. The new requirements clarify the types of taxes, fees, bonuses, and dividends that are required to be disclosed.
The rules require a resource extraction issuer to provide the following information about payments made to further the commercial development of oil, natural gas, or minerals:
Type and total amount of payments made for each project.
Type and total amount of payments made to each government.
Total amounts of the payments, by category.
Currency used to make the payments.
Financial period in which the payments were made.
Business segment of the resource extraction issuer that made the payments.
The government that received the payments, and the country in which the government is located.
The project of the resource extraction issuer to which the payments relate.
The new rules leave the term “project” undefined to provide resource extraction issuers flexibility in applying the term to different business contexts, but provide guidelines on the SEC’s view of what qualifies as a project
How It Must Be Disclosed:
The new rules require a resource extraction issuer to disclose the information annually by filing a new form with the SEC (Form SD). The information must be included in an exhibit and electronically tagged using the eXtensible Business Reporting Language (XBRL) format.
When It Must Be Disclosed:
A resource extraction issuer would be required to file the form on the SEC public database EDGAR no later than 150 days after the end of its fiscal year.
A resource extraction issuer would be required to comply with the new rules for fiscal years ending after September 30, 2013. For the first report, most resource extraction issuers may provide a partial report disclosing only those payments made after September 30, 2013.
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