Financial Transparency Coalition

Statement by Marta Ruiz, Policy and Advocacy Officer, Eurodad
Repsol Sharholders Assembly
Madrid, April 30 2010

Eurodad is a member of the Task Force on Financial Integrity and Economic Development, an international coalition where governments –  including the Spanish government – and civil society organizations work together to improve transparency and the accounting representation of the reality in a global system. One of the priorities of the Task Force in order to improve transparency is the implementation of a country by country reporting standard for multinationals.

The global financial and economic crisis has pointed out deficiencies of the international financial system: its opacity, deficient control and excessive leeway in the business interpretation of law. In this international context, the consequences of tax evasion in developed countries are on first line of debate. But the impact of tax evasion on poor states is even more dramatic, since their economies depend to a much larger extent on taxes that multinational companies pay. This is, especially the case of natural resource rich countries where hydrocarbon sectors represent high percentages of their GDP. These states are often unable to finance their own development.

Conservative estimates point out that illicit capital flows from developing countries fluctuate from 650 billion to 1.000 billion $ a year, number that exceeds that estimated by the World Bank as necessary to reach the Millenium Development Goals. About 60% of this quantity is due to multinational companies’ tax evasion and avoidance through abusive practices such as transfer mispricing and by using subsidiaries in tax havens.

It is widespread practice among multinationals to submit the accounting results on a consolidated basis. This contributes to provide opacity that encourages such practices and their subsequent diversion of resources from developing countries. More than 50% of world trade occurs intra-group and therefore is likely to be subject to transfer pricing abuse or be directed to tax havens. However, not one of those intra-group transactions is broken down in the accounts of the multinationals.

According to various estimates, 50% of global trade passes through a tax haven. About 99% of the biggest European enterprises have at least one affiliate in a tax haven. Repsol is not an exception. Just in the Cayman Islands, Repsol has 10 registered companies with almost no dividends distributed derived from that activity

The fight against tax evasion has generated widespread international support to various initiatives to improve financial transparency, including the presentation of annual accounts on a country by country basis. This initiative is now acknowledged and supported by the OECD, the European Parliament and the European Commission.

Country by country financial reporting should be reflected by an International Accounting Standard for all economic activities across the board. Furthermore, the extractive industry has unique characteristics that require the development of a specific Accounting Standard for the extractive sector.

Therefore, we encourage Repsol to show their support to the adoption of a new international accounting standard for extractive industry that includes the proposals of civil society. In particular we refer to the identification and breakdown on a country by country basis of subsidiaries and associated legal structures for businesses, purchases and sales within the group and third parties, costs and production volumes, profits, reserves and any government payments.

Repsol YPF, as an enterprise that believes that the future of the company will only prosper if it adds the big challenges of the global society of which it is part, should know how to address this challenge and support a legal mandatory measure of transparency that goes beyond the sphere of corporate social responsibility.

Therefore, we insist that, by avoiding bad corporate governance practices and collusion with avoidance and tax evasion, Repsol YPF has much to contribute to the new international accounting standard for extractive industries now under discussion (IFRS-6), giving its public and explicit support to country by country reporting.