When being kept in the dark matters

Country-by-country reporting in the Angolan case

Johan Nordgaard Hermstad Written for Changemaker Norway, November 2013

The reality is, Africa is being ripped off big time. () The international community must do its part to ensure balanced contracts, minimize tax avoidance let alone tax evasions and bring light and transparency in the natural resource sector, [which is] at the moment often very opaque. Donald Kaberuka, president of the African Development Bank1

Work with me to demand more transparency from Africas national leaders and foreign investors. What are they doing? How much is it worth? And how will the money be spent? Kofi Annan, head of the Africa Progress Panel, launching the Africa Progress Report in 20132.

1 2

http://www.theguardian.com/global-development/2013/jun/18/africa-ripped-off-foreign-resource-firms http://www.africaprogresspanel.org/publications/policy-papers/africa-progress-report2013/#.UmRX3BDJKTU

Table of contents
Norwegian summary ........................................................................................................................... 2 Introduction......................................................................................................................................... 3 Country-by-country reporting ............................................................................................................. 4 Angola status on transparency and capital flight ............................................................................. 6 Transparency challenges in Angola in a sector-by-sector perspective ............................................... 7 Norwegian business in Angola ............................................................................................................ 9 Impact of the proposed country-by-country reporting on the Angolan transparency context........ 10 Conclusions........................................................................................................................................ 12 Abbreviations .................................................................................................................................... 14

Norwegian summary
Denne rapporten har som forml vurdere Finansdepartementets lovforslag om innfre obligatorisk land-for-land-rapportering for norske utvinnings- og skogselskap i lys av penhetssituasjonen i Angola, en av Norges strste handelspartnere og investeringsmottakere blant utviklingslandene. Land-for-land-rapportering (LLR) er en rapporteringsmal som bryter ned finansielle nkkeltall p landbasis, i tillegg til de konsoliderte tallene som internasjonale konserner allerede oppgir. Hovedmotivasjonen da skatterettferdighetsbevegelsen p starten av 2000-tallet foreslo dette var avdekke signaler om at selskap misbruker sin konserninterne handel til flytte ulovlig p overskudd og snyte p skatten. Finansdepartementet har i sin proposisjon definert ut kampen mot ulovlig skatteflukt av lovforslagets forml og redusert informasjonskravene til kun gjelde jurisdiksjoner hvor de omfattede selskapene driver utvinningsvirksomhet. Det er ikke lett si hvem som har hevd p definere begrepet LLR, men det kan med rette stilles sprsmlstegn ved om Finansdepartementets forslag faller inn under det. Angola er et land som har opplevd eventyrlig vekst etter borgerkrigens slutt i 2002, men opplever store utfordringer med omsette veksten til forbedringer i levekrene for folk flest. Jos Eduardo dos Santos har 34 r i presidentstolen, og blir sammen med andre parti- og militrtopper beskyldt for utnytte sin politiske makt til berikelse av seg selv og sin familie. Politiske prosesser er ofte svrt lite gjennomsiktige, penheten om offentlige budsjetter er svak og den markedsregulerende rollen til store statseide selskaper som 2

Sonangol og Endiama skaper utfordringer for etterretteligheten i olje- og diamantsektoren. Videre er tjenesteleveranse til oljenringen ansett for vre en av de mest utsatte for konomisk kriminalitet. penhetsutfordringene strekker seg ogs inn i sektorer som ikke har med utvinning gjre, som den eksplosivt voksende byggenringen, bank-, telekom- og turistnringen. Spesielt i bygge- og banksektoren er internasjonale aktrer inne sammen med nasjonale aktrer. Det norske nringslivets tilstedevrelse i Angola er strre enn i de fleste andre utviklingsland. Det er frst og fremst tjenesteleverandrer til oljesektoren som er etablert i landet, men ogs andre sektorer er representert. Det er p nvrende tidspunkt hyt usikkert om noen av de norske selskapene kommer til bli omfattet av de nye norske rapporteringsreglene p en slik mte at nye tall blir offentliggjort om Angola. Statoil, som utvilsomt driver ressursutvinning i Angola, rapporterer allerede og andre selskap melder at de vil mtte bruke tid p etablere om de vil vre plagt rapportering eller ikke. Informasjonsverdien av LLR for Angolas del er alts i det bl. Verdien av det norske forslaget til land-forland-rapportering kan vurderes etter to kriterier: Tilgangen til meningsfull og troverdig informasjon. Angolansk sivilsamfunn understreker at detaljnivet m vre hyere enn foresltt om de skal kunne anvende LLR i sitt arbeid. Videre m informasjonen oppgis for alle land selskapet har virksomhet i om LLR skal ha verdi for angolanske myndigheter og troverdigheten ville vrt bedre ivaretatt om rapporteringen inngikk som noter til selskapets regnskap.

Sektorutvalget. Det er fremdeles knyttet stor usikkerhet til hvor mange norske selskap i Angola som kommer til rapportere. Vi vet at gjennomsiktighetsutfordringer er knyttet til mange andre sektorer enn bare utvinningssektoren, og om LLR var plagt for alle sektorer ville informasjonstilgangen for det angolanske sivilsamfunnet blitt vesentlig.

developed economies have turned their attention to multinational companies as well as wealthy individuals and their compliance with the social contract. Several concrete political initiatives have been on the agenda to ensure financial transparency. Bilateral information exchange agreements and unilateral legislation are among the instruments introduced to end bank secrecy and limit illicit tax evasive behavior in financial secrecy jurisdictions (commonly called tax havens). Some of these policy tools have in varying degree included country-by-country reporting an idea first developed by Richard Murphy in 20022. Notably, the US Dodd Frank legislation and the new consolidated EU accounting directive have incorporated parts of the country-by country reporting tool. Based on the EU directive, the Norwegian parliament will vote over a proposed piece of country-by-country legislation coming into force January 1st 2014. Global Financial Integrity (GFI), describing illicit financial flows from Africa as a hidden resource for development, estimates the amount of financial flows illicitly leaving the continent to surpass $ 100 billion dollars in the years leading up to the financial crisis3. Notably, the GFI reports do not include the estimates of internal mispricing within multinational companies, and with this methodological barrier in mind, GFI stresses the possibility of the real scope of IFF being much higher4. The African continent is not

P bakgrunn av rapporten kommer Changemaker med flgende anbefalinger: Bekjempelsen av skatteflukt br vre et hovedforml ved land-for-landrapportering. Land-for-land-rapporteringen br beskrive et bredt utvalg av finansielle opplysninger som er tilstrekkelig spesifisert og gjelder for alle jurisdiksjonene et selskap er registrert i. Rapporten br komme som noter til regnskapet til selskapene omfattet av regelverket. Land-for-land-rapportering br gjelde for alle sektorer.

Introduction
Corporate taxation and financial transparency have made their presence known on the international political agenda in the last couple of years. The G20 group of sizeable economies has time and again reiterated the need for greater financial transparency concerning tax information about multinational companies1 since the famous collapse of Lehman Brothers in 2008. With increasing pressure on government budgets following the crisis, governments in many
1

http://www.bbc.co.uk/news/business-23994488

Country-by-country reporting accounting for globalization locally, Richard Murphy for TJN, page 2 3 Global Financial Integrity, ILLICIT FINANCIAL FLOWS FROM AFRICA: HIDDEN RESOURCE FOR DEVELOPMENT (2008) 4 Tom Cardamone, Managing director Global Financial Integrity Illicit Financial Flows

only a continent that has experienced formidable economic growth the last decade, but is also facing high growth rates in the population and challenging restrains in government institutions and key sectors like education and health. This means that African governments will have to make the most of their growing economic activity to actually give the population the chance for a better life. Fair taxation is a key prerequisite to enable that. This report will analyze the proposed Norwegian country-by-country legislation in light of the case of one of the most important economic partners of Norway on the African continent Angola. What are the strengths and restrains of the proposed legislation in light of contributing to financial transparency and accountability in Angola? Especially, the sector selection and limited content will be analyzed in light of the Angolan context.

group trading in each country will according to TJN contribute to clarifying the following key issues. Is there a risk that the company is conducting serious transfer mispricing within the group? Are the companys activities, profits and taxes geographically distributed in a manner that increases the risk and vulnerability of the company, for example with the change of policy in a certain jurisdiction threating future earnings? Is the companys employment policy fair and lastly, is the activity of the company sustainable? These are questions that investors, tax authorities, politicians, media, organizations and the general public have an interest in knowing the answers to when doing their economic and political decision making, and according to TJN, country-by-country reporting was developed as a unique tool to provide those answers5. The Norwegian branch of Publish What You Pay (PWYP) developed reporting templates for what the organization called extended country-by-country reporting in the preparatory process for the proposed legislation in Norway. Not differing greatly from the TJN objectives and content, PWYP emphasizes that information about taxation and country adherence alone is necessary, but not adequate for investors and other relevant actors to take informed decisions. The information must be put into a meaningful context, hence other key figures than just tax and other government payments must be reported on6. In terms of sector selection, the initiating organizations have been skeptical of limiting the scope from a general cross-sectorial financial reporting standard, not least because
5

Country-by-country reporting
Objectives and definitions of country-bycountry reporting Country-by country reporting is a concept developed and advocated for by several NGOs and has taken slightly different forms. Tax Justice Network (TJN) and Publish What You Pay (PWYP) have been driving forces in developing the concept, both defining the objectives and the content of the reporting. Country-by-country reporting is intended to provide information to a wide range of actors in society, facilitating informed economic decision making. Providing information about in which countries a multinational company (MNC) is operating and about the scale of operations, investments, profits, taxation, employment (and salaries) as well as intraMethodology, Magnitude and Mitigation in conference paper to NCA Angola/CEIC

Country-by-country reporting accounting for globalization locally, Richard Murphy for TJN, page 7 6 EXTENDED COUNTRY-BY-COUNTRY REPORTING, The 3-minute version, PWYP Norway, page 1

it poses problems in defining the sector limits, but also because corruption, tax evasion and financial irregularities are issues that appear in all types of sectors. However, most attention has been given both from legislators and NGOs to extractive industries due to their particular transparency challenges. The Norwegian country-by-country legislation proposal The Norwegian outgoing government presented on October 14th its proposal for country-by-country reporting legislation. The proposal is based on the likely new consolidated EU accounting directive, but goes further than the EU proposal in demanding contextual information to ensure meaningful reporting. The proposed legislation does, however, differ significantly from core aspects of the definitions of country-by-country reporting given above. Most significantly, the Ministry of Finance writes the following in the explanation of the proposal: More transparency about payments to governments will in itself be able to have a preventive effect and can in itself both stop illegal tax evasion and unwanted tax planning. The ministry means, though, that the new Norwegian country-by-country reporting legislation should not have as an explicit main objective to contribute to stop illegal tax evasion, but that the main objective with the rules should be to contribute to increased transparency about the activity of companies that are engaged in extraction of nonrenewable natural resources, in that way making governments accountable for the spending of the revenues from

the lands natural resources7 [Translation by the author] The proposal from the Ministry of Finance makes reference to the EU legislation upon which the Norwegian legislation is based, noting that tackling tax evasion is not an explicit core objective of these rules. As a consequence of the objective limitation, companies are proposed to be relieved from reporting financial details in countries in which they are not engaged in resource extraction. Hence, uncovering signals of internal trade mispricing is not possible with the proposed legislation, somewhat contradicting the comment given by the Finance Minister on the publishing of his intention to propose the legislation during the electoral campaign. The minister commented that the legislation would be especially important for developing countries with weak tax administrations8. Tax Justice Network makes it clear in their detailed report on country-by-country reporting that any legislation has to embrace the disclosures recommended in this report or it is not country-by-country reporting9. Concretely assessing the 2012 proposal for EU legislation the same TJN report considers it despite providing welcome transparency progress not to be in accordance with the organizations definition of country-by-country reporting. Whether or not the Norwegian proposal for legislation is deviating too much from the
7

http://www.regjeringen.no/nb/dep/fin/dok/regpu bl/prop/2013-2014/prop-1-ls20132014/20.html?id=741280
8

http://www.regjeringen.no/nb/dokumentarkiv/sto ltenberg-ii/fin/Nyheter-ogpressemeldinger/nyheter/2013/land-for-landrapportering.html?id=735280 9 Country-by-country reporting accounting for globalization locally, Richard Murphy for TJN, page 6

defining concepts of country-by-country reporting is not up to the author of this report to determine. For practical reasons, the term will be used throughout the report, but please bear in mind that this is not necessarily a fair use of the expression in light of the original intentions of the reporting framework.

daughter Isabel dos Santos being the richest Angolan and first female US dollar billionaire in Africa13. Her half-brother Jos Filomeno dos Santos has been put in charge of the recently formed Angolan $ 5 billion sovereign wealth fund14. According to Oliveira, enrichment remains dependent on access to political power15. Human development Though being a country experiencing significant economic growth, it is facing serious challenges connected to indicators of human development. The country is ranked at number 148 out of 186 in the UNDP Human Development Index, combining economic and social indicators16. 16 per cent of every child born in Angola dies before the age of 5, which leaves the country among the bottom ten in global statistics. Life expectancy is at 51,5 years17. The educational sector is quite weak, with secondary school (from 12 years of age) and higher educational levels especially suffering from low enrolment numbers.18 These indicators sound quite depressing for a country with a higher GDP per capita than Serbia. Not surprisingly, a Gini coefficient of 0,55 gives us a hint about serious challenges regarding distribution of the countrys newfound wealth19.

Angola status on transparency and capital flight

Political context The Angolan political environment is a challenging context, still significantly affected by the almost thirty year long civil war that followed the countrys independence from Portugal in 1975. The post-conflict development of the country has been called a pivotal example of what can be termed illiberal peace building by dr Ricardo Soares de Oliviera from Oxford University10. During the war, the communist-supported MPLA fended off and finally won convincingly over the opposing UNITA supported by the US and South Africa, leaving the leading MPLA figures and heads of the armed forces in a very strong position after the wars end in 200211. The Angolan President Jos Eduardo dos Santos has held the post since 1979, winning both post-war elections with big numbers. However, Freedom House classifies the country as politically not free with reference to among others violent repression of political dissidents, control of media and dysfunctional separation of powers12. Dos Santos and the political and military elites are also very well off economically, with the presidents oldest
10

13

http://www.forbes.com/profile/isabel-dossantos/
14

http://www.reuters.com/article/2013/06/21/angol a-fund-idUSL5N0EX29020130621 15 Ricardo Soares de Oliveira, Illiberal peacebuilding in Angola in Journal of Modern African Studies, Cambridge University Press (2011)
16

Ricardo Soares de Oliveira, Illiberal peacebuilding in Angola in Journal of Modern African Studies, Cambridge University Press (2011) 11 For an account from the last phase of the war, read An outbreak of peace by Justin Pearce 12 http://www.freedomhouse.org/report/freedomworld/2012/angola

http://hdrstats.undp.org/en/countries/profiles/AG O.html 17 Same as ref. 18 18 Relatrio social de Angola 2012, Universidade Catlica de Angola, chapter 4 19 http://www.economist.com/node/18118935

Financial transparency Angola does not perform well on indicators of corruption, placing itself among the twenty poorest performing countries on the Corruption Perceptions Index (nr. 157)20. The International Monetary Fund (IMF) launched in 2011 an assessment of the governments transparency regarding public spending, in which they found $ 32 billion (a quarter of the GDP) unaccounted for. Later they found that most of this was quasi-fiscal operations handled by Sonangol in the governments stead21. Sonangol, the stateowned oil company, is not only both operator and regulator in the oil market. It also offers services in areas like aviation, health and housing, operating as a state within the state. Increasingly, the public spending handled by Sonangol has been integrated in the general state budget as a consequence of among other IMF demands for greater spending transparency in return for liquidity loans in the wake of the financial crisis. However, Angolan civil society is not satisfied with the degree of transparency in public spending. For instance, the biggest chunk of spending on education is under an unspecified post in the government budget, leaving interested parties speculating who benefits from the grant22. Global Financial Integrity estimates that countries like Angola throughout the period 1980-2009 saw 10 % of the gross domestic product (GDP) leave the country illicitly23. Bear in mind that GFI estimates do not include illicit capital flight resulting from transfer mispricing.
20 21

Transparency challenges in Angola in a sector-by-sector perspective

Petroleum Petroleum is the dominating sector in the Angolan formal economy, accounting for approximately 50 % of GDP and more than 95 % of exports, making government revenue completely dependent on the sector24. The sector is dominated by Sonangol, the stateowned petroleum company. The role as a regulator means that the several taxes, of which oil in kind is the most considerable, are channeled through the company25. However, there is a major lack of transparency regarding how these funds are channeled further into the proper government structures. Notably, Filomeno Vieira Lopes, secretary general in the opposition party Bloco Democrtico with a long career in Sonangol, in an interview for this report especially underscored that signature bonuses and contractual obligated social contributions are very hard to find out who actually ends up with. Concretely considering the (almost complete) country-bycountry report by Statoil for 2012, Vieira Lopes claimed these quite substantial sums, for 2012 exceeding 3,4 billion Norwegian Kroner, give no real information to Angolan civil society and opposition unless it is accompanied with further specifications regarding to whom the money is paid. Open Society Initiative for Southern Africa (OSISA) made a report with Global Witness in 2011 assessing government transparency in oil revenues and found that different reports from different ministries and Sonangol were deviating significantly. For instance, the
24

http://www.transparency.org/cpi2012/results

http://www.reuters.com/article/2012/01/25/ozatp -imf-angola-idAFJOE80O00O20120125 22 Interview with OSISA 23 Tom Cardamone, Managing director Global Financial Integrity Illicit Financial Flows Methodology, Magnitude and Mitigation in conference paper to NCA Angola/CEIC

Relatrio Econmico de Angola 2012, Universidade Catlica de Angola, pages 96 and 99 25 Doing good by doing well? Statoil in Sub-Saharan Africa, Fridtjof Nansen Institute commissioned by Norwegian Church Aid, page 20

Ministry of Finance reported oil exports to be 87 million barrels fewer than the Ministry of Petroleum number in 2008. The two ministries also reported three different average oil prices, deviating almost US $10, and the total deviation on reported oil tax income was several hundred million dollars. OSISA could in an interview made for this report confirm that they confronted the authorities with their findings, and to this date the government has not given any explanation or comment on the information revealed. Also apart from the role of Sonangol, the petroleum sector has serious transparency challenges in Angola. Especially regarding the use of local content, suspicion of corruption and mixing of political and economic power arises. According to OSISA, persons close to the political elite often hide in shell companies, subtracting revenue from joint ventures with international companies. Statoil has so far, as a passive co-investing partner not operator - on the Angolan continental shelf, not been very active in engaging with national actors. The company has in light of the transparency deficiencies expressed that risk management and anti-corruption practices is and will be an important integrated component of their work in the coming years as Statoil is assuming the operator role on the Angolan continental shelf. Diamonds Diamonds is a historically important source of revenue and the second biggest export article of the country. During the civil war, extraction of diamonds was the most important source of income for UNITA for them to be able to sustain their opposition, Angolan diamonds gaining the nickname conflict diamonds or blood diamonds. The diamond industry is today no more than 1 % of the Angolan GDP, but Angola keeps its fourth place as global diamond exporter and the registered 8

employees in the sector far surpasses the oil sector26. Although Angola is no longer in civil war, claims about human rights violations and informal economic activity related to the extraction of diamonds still occur. The main production of diamonds is far removed from the capital Luanda, and the role of the state owned company Endiama, Isabel dos Santos and Israeli and Russian business contacts in the business remains somewhat unclear27. The investigative journalist Rafael Marques de Morais published the book Blood diamonds corruption and torture in Angola in 2011 in which he made allegations of slave-like working conditions, torture and assassinations, corruption and the post-war involvement in the diamond industry by military generals and high political figures with the help of foreign capital28. Being met by significant judicial and extra-judicial resistance from Angolan actors, Marques has however gained international recognition, receiving a Transparency International integrity-prize as recently as November 201329. Construction The construction sector is one of the most frequently mentioned by the civil society as sectors with transparency challenges in Angola. These challenges are also systematically addressed by a joint Chr. Michelsen Institute (CMI) and CEIC study on public sector transparency. The study resulted in the identification of ten core transparency challenges in the rapidly expanding construction sector both in infrastructure
26

Relatrio Econmico de Angola 2012, Universidade Catlica de Angola, pages 107 and 99
27

http://www.forbes.com/sites/kerryadolan/2013/0 8/14/how-isabel-dos-santos-took-the-short-routeto-become-africas-richest-woman/2/ 28 Diamantes de sangue corrupo e tortura em Angola, Rafael Marques de Morais, Tinta-da-china (2011) 29 http://mg.co.za/article/2013-11-07-journorecognised-for-anti-corruption-fight

and housing. Notably, CMI/CEIC comments that many projects are poorly planned and lack cost estimates and budget restraints. There is little or no competition in awarding of contracts, ownership is elusive in different parts of the value chain, quality of construction is varying and political players have a tendency of interfering in administrative processes30. The construction sector in Angola is highly international, with Brazilian, Chinese and Portuguese firms dominating the market. Thus, international transparency regimes could contribute to increased accountability in the Angolan construction sector. Banking, tourism and telecom In addition to the above mentioned sectors, banking, tourism and telecommunications are among the sectors in Angolan economy where transparency challenges are mentioned. In these sectors, the market actors are largely national. The main transparency concerns raised regarding these sectors are regarding how the owners of these firms got in that position. For instance, Forbes magazine in a recent edition asks many questions about the executive role of president dos Santos and his daughters very strategic and somewhat unclear path to ownership over the nations biggest telecom company and a leading bank31.

Ease of Doing Business Index32 and first and foremost due to a high level of cooperation on extraction of oil. Notably, the biggest contribution to Statoils oil production outside Norway hails from the Angolan continental shelf, but there are also quite a few other Norwegian companies operating in Angola. According to the Norwegian Council for Africa company database, there are currently 23 Norwegian companies operating in Angola, applying a broad definition of the term Norwegian companies. These companies are either registered in Norway or they have Norwegian owners, head office of board of directors. Also, companies taxing to Norway or having a strong historic link to Norway are included in the data base33. It is worth noting that several of the companies considered Norwegian by the Norwegian Council for Africa are actually registered in Bermuda and Cyprus, jurisdictions commonly regarded as secrecy jurisdictions. This does not in itself mean that these companies are engaging in illicit financial activities. There are legitimate reasons for establishing in secrecy jurisdictions, but it poses a considerable challenge in actually verifying that the company is complying with all its obligations. Subjects to the Norwegian country-by country reporting in Angola Most Norwegian companies in Angola are delivering different kinds of services to the petroleum sector, of which Aker Solutions, Seadrill and FMC Technologies are among the most well-known to the general public. The types of services differ from seismic surveys

Norwegian business in Angola

Angola is one of the biggest trade partners and receiver of Norwegian investments in Africa. This is despite the 179th place in the

30

Ten challenges in Public Construction, CMI Angola Brief November 2011, Volume 1 No. 19
31

32

http://www.doingbusiness.org/data/exploreecono mies/angola/
33

http://www.forbes.com/sites/kerryadolan/2013/0 8/14/how-isabel-dos-santos-took-the-short-routeto-become-africas-richest-woman/2/

http://www.afrika.no/Landinformasjon/Bedriftsdat abasen/Countries/Angola

and drilling to transport and maintenance. None of these service deliveries companies have confirmed to the author of this report that they expect to be subject to the new legislation, some underscoring that they will have to engage in legal consultations to clarify this. Also, the Norwegian Ministry of Finance has yet to publish a specified list of companies that will be affected. The ministry though expects that the legislation will cover approximately 80 companies registered in Norway, a number that will diminish as the consolidated EU accounting directive is implemented by the members. From this number, it would be reasonable to expect that some but far from all service delivery companies within the petroleum sector will have to produce reports, depending on the kind of services they deliver. Statoil has already for some time been publishing an almost complete country-bycountry breakdown of their activities and government payments as part of their annual sustainability reports, Angola being included in the reports since 2001. Notably, the Angolan authorities expressed their disapproval of the disclosure, but no official reprimands were put in place34. Statoil is not likely to be obliged to disclose more information than they already do if the proposed legislation is enacted. Norsk Hydro, another company active in Angola, will be subject to the legislation due to its bauxite mining in Brazil. However, the company does not expect to be reporting on payments and activities in Angola as the Hydro does not extract natural resources in the country. Apart from the already mentioned sectors, there is only a handful Norwegian companies registered in Angola. These are basically
34

shipping companies as well as the paint and coating producer Jotun and the fertilizer producer Yara. Worth noting in the case of Yara is that the company has been attracting a considerable amount of unwanted media attention in the form of corruption accusations, speculations and investigations35. None of these media cases have been related to the companys activities in Angola, but it would perhaps be for the companys own good to disclose its payments to the Angolan government to rid itself of speculation about its dealings with one of the most corruption associated governments in the world.

Impact of the proposed countryby-country reporting on the Angolan transparency context

Whether or not the proposed country-bycountry reporting legislation will bring any new information about the activities of Norwegian companies in Angola at all remains elusive. That is a quite surprising situation, especially taking into account that the legislation supposedly is aimed at making an impact in developing countries and Angola is one of the most important Norwegian investment recipients in the developing world. The usefulness of the Norwegian legislation on country-by-country reporting in the Angolan context can be assessed with two main criterions: (1) the access to meaningful and credible information and (2) the sector selection. Access to meaningful and credible information Country-by-country reporting must be meaningful to have an effect, both for civil
35

Doing good by doing well? Statoil in Sub-Saharan Africa, Fridtjof Nansen Institute commissioned by Norwegian Church Aid, page 17

http://www.na24.no/article3464751.ece http://www.aftenposten.no/okonomi/Yararapport-bekrefter-korrupsjon-6931704.html http://www.hegnar.no/bors/article745006.ece

10

society actors and government tax authorities. The proposed Norwegian legislation offers next to no interesting information for Angolan tax authorities as long as the multinational companies do not have to report from countries in which they are not performing natural resource extraction. This means that there is no way for Angolan tax authorities to use the report to discover figures that indicate internal transfer mispricing, on which they can launch an investigation into the realities of the matter. The only sort of use Angolan tax authorities can get from these numbers is comparing the tax burden in Angola to other resource exporting countries serving as a basis for taxation decision making. It should be added that the Angolan Ministry of Foreign affairs have been invited to comment on the proposed legislation and on general transparency and taxation, but have refrained from this. For civil society actors and the opposition in Angola, the proposed Norwegian legislation bears more meaning. Also a report limited to Angola and other resource extraction countries will give the civil society new information and greater opportunities to hold the Angolan government accountable for its public spending. However, like earlier mentioned, the level of details must be higher than already proposed to be able to trace the entry point of the government payments. This is especially concerning signature bonuses and social investments and contribution. Further on, some civil society actors mistrust the will of the Angolan government to address tax evasion and transfer mispricing. As the people is suffering from the lack of public revenues, it should be every mans right to gain access to information about Norwegian companies activities in all jurisdictions, including tax havens. This must be public as providing that information to the tax 11

authorities alone might not be enough to deal with the problem36. Finally, for the figures reported to give meaning, they must be credible. The fact that including the country-by-country report in the financial statement of the company will be the cheapest way of reporting is of minor importance applying the Angolan perspective. More importantly, such a format to the report will quality assure the numbers, and create a solid basis for both the Angolan government, opposition and civil society to engage in informed debate. Sector selection Like pointed out on several occasions both by the government working group for countryby-country reporting and NGOs contributing to the development process of the Norwegian legislation, tax evasion and corruption is far from a unique concept for the extractive industries. As accounted for in earlier, this holds true also for Angola, with sectors like construction, banking and telecommunication facing very serious transparency challenges. In Angola, the extractive industries dominate the economy in terms of volume, and there is no doubt that increased transparency standards in extractives will have a major impact on a national level. However, like previously mentioned, the boundaries of the term extractive industry remains elusive, and if all Norwegian service delivery companies to the petroleum sector in Angola were to fall outside the definition, the Norwegian legislation on country-by-country reporting will have no effect whatsoever in the Angolan context. If, on the other hand, all service delivery companies to the petroleum sector were to be included in the legislation, the quantity of new and valuable information for

36

These are views fronted in both the meeting with Bloco Democrtico and OSISA

the Angolan government and civil society would be considerable. Companies like Hydro, Jotun and Yara are among the proudest representatives of Norwegian business outside the petroleum sector, and these companies could gain much recognition from being at the forefront in questions of financial disclosure. The owninterest in dismissing suspicions of dubious financial activity should be especially obvious to Yara, in the light of recent allegations. The cost for Norwegian companies is not the primary concern of this report, but there is no doubt companies will spend more energy and money clarifying whether or not they are obliged to report under the proposed regime than they would be if the legislation were to concern all sectors.

diamond sectors, but also big sectors like construction, banking and telecommunications would benefit greatly from greater scrutiny. The special interlinked relationship between political and economic power in Angola implies a special obligation for Norwegian and other multinational companies operating in the country to emancipate the Angolan civil society so it can challenge unhealthy power relations. Not only is meaningful information about the government payments in Angola needed. Indicators of abusive transfer mispricing must be public to mobilize the Angolan government into challenging secrecy jurisdiction and global tax evasion practices. Angola is a country in great need of human development, a country heavily relying on extractive industries, a country in great need of increased financial transparency and one of the developing countries in the world with the highest level of Norwegian investments. The proposal for Norwegian country-bycountry reporting legislation has had the explicit target of assisting countries to reach greater financial transparency in its extractive industries towards the end of facilitating human development. Given these conditions, the proposed countryby-country reports should mean a lot for Angola, as one of the most relevant cases for the applicability of the legislation. However, the findings of this report are that the proposal, as is stands today, will have a questionable or marginal impact according to these objectives in Angola. This means that the Norwegian parliament is about to adopt legislation that is watered down in a way that not only gives relatively bad value, it also demands higher compliance costs than necessary.

Conclusions
Angola is a textbook example of the kind of development challenge the world is facing. The number of poor nations decreases, but poverty itself does not decrease at the same rate. Increasingly, governments in developing countries have the means to eradicate poverty. However, they lack political will. Will to challenge multinational companies hiding fortunes in secrecy jurisdictions. Will to apply government funds where it makes a difference and empowers their country fellows to rise from poverty. There is a considerable need for increased transparency in Angolan society to enable mechanisms of political participation, inclusive growth and fair taxation. The need for transparency is only strengthened by the challenging concentration of political and economic power in a several important sectors. Increases in transparency are without doubt most needed and would have greatest effect in the extractive petroleum and 12

More value for less money means adopting the following recommendations Changemaker and several other NGOs make: The objective of combating illicit tax evasion should be at the core of country-by-country reporting legislation. Country-by-country reporting should be on an extended amount of key financial figures sufficiently specified and for all jurisdictions the MNC is registered in. The report should be included in the financial statement of the company. Country-by-country reporting should apply to all sectors.

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Abbreviations
CEIC CMI GFI IFF IMF Centre for scientific studies and investigation at the Catholic University of Angola Chr. Michelsen Institute Global Financial Integrity Illicit Financial Flows International Monetary Fund Multinational Companies Movimento Popular de Libertao de Angola Norwegian Church Aid Non-governmental organization Open Society Initiative for Southern Africa Publish What You Pay Tax Justice Network Catholic University of Angola Unio National para a Independncia Total de Angola

MNCs MPLA NCA NGO -

OSISA PWYP TJN -

UCAN UNITA -

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