SEC requires disclosure of payments by extractive industries companies

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In brief , PwC US Jul 05, 2016

The SEC has adopted rules that require issuers to disclose payments made to governments related to resource extraction.

Authored by

Simon Tait

Partner, PwC US


What happened?

On June 27, 2016, the SEC adopted final rules requiring issuers to disclose payments made to governments related to resource extraction. The rules are in response to Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which directed the SEC to issue rules requiring issuers engaged in resource extraction to disclose payments made to the federal government or foreign governments for the commercial development of oil, natural gas, and minerals. The SEC initially adopted rules requiring this disclosure in August 2012, but those rules were vacated by the US District Court for the District of Columbia in July 2013.

Key provision

All issuers, including foreign private issuers and smaller reporting companies, that are required to file an annual report with the SEC pursuant to Section 13 or 15(d) of the Exchange Act and engage in the commercial development of oil, natural gas, or minerals are required to provide the new disclosures. The rules require the disclosure of all payments made by the issuer or any subsidiary or entity controlled by the issuer to foreign governments, including subnational governments (e.g., state, county), or the US federal government to further the commercial development of oil, natural gas, or minerals. The issuer disclosures include the type and total amount of payments for each project, the government that received the payments, and the resource to which the payment relates.

For purposes of the disclosure, the following definitions would apply:

  • “Control” would be determined by reference to the consolidation principles used by the issuer in their annual audited financial statements filed with the SEC.
  •  “Project” means operational activities that are governed by a single contract, license, lease, concession, or legal agreement that forms the basis for payments. This could also include operational and geographically interconnected activities.
  • “Payments” include taxes, royalties, fees (including license fees), production entitlements, bonuses, dividends, payments for infrastructure improvements, and community and social responsibility payments that are “not de minimis.”
  • “Not de minimis” means any single payment or series of payments that equals or exceeds $100,000 during the same fiscal year.

The information is required to be disclosed as an exhibit to the SEC’s specialized disclosure report (Form SD) using an XBRL format. This information is not required to be audited.

The SEC has determined that the disclosures in this area required by the rules of the US Extractive Issuers Transparency Initiative, European Union directives, and the Canadian Extractive Sector Transparency Measures Act are substantially similar to those required by the SEC rules. Accordingly, reports under those requirements can be used to comply with the new SEC rules.

In a change from the rules originally proposed in December 2015, the final rules include two exemptions that provide for transitional relief or delayed reporting in limited circumstances: (1) a recently acquired company not previously subject to these rules can be excluded from the disclosure requirements for one fiscal year following the acquisition and (2) payments related to exploratory activities do not need to be reported until the year following initial adoption of these rules. The SEC will consider exemptive relief on a case by case basis.


Why is this important?

The rules require the disclosure of information that has not previously been made public. Issuers should begin to consider the applicability of the rule to their business and ensure that they will have the appropriate systems, processes, and controls to comply with the new requirements by the effective date.

What’s next?

Those subject to the rule are required to file Form SD annually no later than 150 days after their first fiscal year ending on or after September 30, 2018. Calendar year-end companies will be required to comply with these requirements for the fiscal year ending December 31, 2018.


PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams who have questions should contact the National Professional Services Group.

Contact us

David Schmid

David Schmid

International Accounting Leader, National Professional Services Group, PwC US

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