What Equinor should have reported

Facsimile: Dagens Næringsliv February 25 2021

This piece was first published i Dagens Næringsliv on February 25 2021.

Following the Storting's Equinor hearing February 25th, the parties should agree to put in place the rule change that would have forced Equinor to disclose the US losses.

The financial daily Dagens Næringsliv disclosed last year that Equinor has lost approximately NOK 230 billion on investments in the United States over the past 20 years. Whatever the reason for the losses, the owners - the community in Norway - have never received information about how severe it was. We would have received this if the Accounting Act required extended country by country reporting in line with what Publish What You Pay Norway has proposed.

The Office of the Auditor General concluded before Christmas that the Ministry of Petroleum and Energy (MPE) has not had a sufficient overview of the content of Equinor's public reporting. On Friday, the Storting's Control and Constitution Committee will hold a hearing on the Office of the Auditor General's investigation of the Ministry's follow-up of Equinor. Auditor General Per-Kristian Foss said in a public meeting recently that the ministry "has not acted as a professional and informed owner for many years".

Minister of Petroleum and Energy Tina Bru seems to think that the MPE has had an active follow-up of Equinor and does not understand the criticism.

If we are to avoid this in the future, companies must be required to improve their reporting. The State must agree with itself on where the responsibility must lie to demand better reporting. The case is now being considered by the control committee. The matter will then be debated in the Storting (Parliament).

The parties should use the opportunity to demand that the regulations in the Accounting Act be formulated in a correct manner, so that companies are obliged to disclose the accounting sizes in an extended country-by-country reporting.

It is important. Before Christmas, Minister of Finance Jan Tore Sanner received a written question from member of parliament Lars Haltbrekken (SV) regarding how he will follow up the work with extended country-by-country reporting in the Accounting Act, after the law was evaluated. Sanner's response leaves the impression that the government intends to continue on the same path.

We have analyzed Statoil's / Equinor's reporting under the regulations for "country-by-country reporting" over several financial years. The costs have generally been hidden and impossible to follow. Hidden costs prevent access and public discussion of important issues concerning the operation of public companies.

Better reporting could not have prevented the original acquisition. But it could have prevented the company from throwing (billions of) good money after bad. It is in the public interest to avoid losing 200 billion NOK.

Equinor alone cannot be blamed for not disclosing losses in the United States. (Although they could have reported this story, if they only wanted to). Equinor follows a poorly designed regulation. The group complies with Norwegian law. The problem is also greater than Equinor's losses in the United States.

The inadequate reporting requirements also prevent access that can show the use of tax havens and highlight potential tax evasion by companies in general.

ØKOKRIM (Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime) estimated that tax evasion in Norway is at least 136 billion annually.

In 2017, the Ministry of Finance included several of the requirements for extended country-by-country reporting in the Accounting Act. The regulations were to, in line with the Storting's request decision, «counteract unwanted tax adjustment» and «make support functions in third countries visible».

But the Ministry of Finance designed the regulation in a way that makes it have the opposite effect: The regulation was linked to the obligation to provide information only from those countries where companies pay taxes, which companies do not do in tax havens. The consequence is that companies today actively remove tax havens from reporting.

The reporting requirements should be as follows:

  • The companies must report eight accounting figures: Production by type, employees, investments in the cash flow analysis, income, costs before depreciation, payable income tax in the accounts, tax payable 1.1. and tax payable 31.12.
  • When the information is to be reported also from tax havens (referred to as «support functions in third countries by the Ministry of Finance) in order to highlight potential tax evasion, § 4, 2 subsection is amended to:« Regardless of whether there is an obligation to provide information on payments to authorities .. . ».
  • The figures that are reported must be taken from the accounts to ensure equal treatment of companies on what they are to report (equality before the law).
  • The additional information (the requirements in extended country-by-country reporting, ECBCR, not CBCR) must be entered in a note to the annual accounts in order to increase confidence in the figures. These are already revised figures by the auditor in connection with the audit of consolidated accounts, so that this does not entail any cost increase. In fact, this will help to prevent later requirements for revised figures from the separate CBCR reporting.
  • Eliminations must be reported together and separately so that the sum of countries and eliminations can be reconciled with the financial accounts. This applies to eliminations of income and expenses, and these must then be reported before eliminations in the individual country.
  • Reported investments must be in line with the cash flow analysis in order to obtain correctly delimited investments per year in accordance with to the only clear definition of investments available in the international accounting standards IFRS.
  • Properly designed extended country-by-country reporting requires only accounting sizes.

The result for the Storting is that it does not report the companies' key figures from tax havens ("support functions in third countries"), nor does it allow potential unwanted tax adjustments to become visible.

The regulations are so poorly designed that the companies get a communication problem. Equinor's internal auditors warned that the company's legal structure in the United States could "give the impression that the company was conducting speculative tax planning."

The government has so far refrained from demanding transparency. The Ministry of Petroleum and Energy and its previous ministers have refrained from demanding the information needed. The Ministry of Finance has formulated the regulations that could solve the problem in such a way that causes it not to work. The Minister of Finance and the Minister of Petroleum and Energy appear to not understand.

As a result it will be impossible to follow up on issues such as Equinor's loss in the US. It's just a matter of waiting for the next big loss of community funds. In that case, it is the desired policy.