As of 1 January 2021, companies domiciled in Switzerland that are active in the extraction of raw materials must disclose payments to state authorities or government officials of Sfr100,000 or more per financial year. The new transparency provisions aim to foster responsible behaviour and create a uniform framework by aligning the Swiss provisions with existing standards under EU and US legislation. The new regulations will apply for the first time for the financial year 2022.
The new transparency obligations stipulated in Article 964a-f of the Code of Obligations apply to Swiss companies which fulfil the following two conditions.
First, the new obligations apply only to companies subject to an 'ordinary audit' within the meaning of Article 727(1) of the Code of Obligations. This includes, in particular, publicly traded companies and companies that exceed two of the thresholds contained in Article 727(2) of the Code of Obligations in two successive financial years (ie, a balance sheet total of Sfr20 million, a sales revenue of Sfr40 million or 250 full-time positions on annual average).
Second, companies must be active in the field of raw material extraction. According to Article 964a(4) of the Code of Obligations, 'raw materials extraction' includes all activities concerning the:
- exploration, prospection, discovery, development and production of minerals, crude oil and natural gas deposits; and
- the harvesting of timber in primary forests.
According to the accompanying Federal Council report, the statutory purpose or the activity of companies need not be exclusively or predominantly geared towards the extraction of raw materials. Rather, occasional or even one-off (eg, project-related) activities fall within the scope of the new provisions. Further, whether companies carry out the activity themselves or through a controlled subsidiary is relevant.
At present, companies active only in commodity trading are not subject to the new transparency obligations. However, the Federal Council has the power to extend the transparency provisions as part of an internationally coordinated approach to commodity trading in the future (Article 964f of the Code of Obligations).
Companies subject to the new transparency obligations must publish a report electronically within six months of the end of the financial year that provides information on all payments to state authorities or government officials amounting to at least Sfr100,000 and relating to the extraction of raw materials.
'State authorities and government officials' are national, regional and local authorities of a foreign country and companies controlled by these authorities (Article 964a(5) of the Code of Obligations). Payments to such authorities to be disclosed include:
- taxes on the production, revenues or profits;
- payments for production entitlements and royalties;
- signing, discovery and production bonuses; and
- licence, rental and access fees or other considerations for permits or concessions (Article 964b(1) of the Code of Obligations).
Moreover, both cash benefits and benefits in kind are considered as payments. Whether the payments are made in one or several instalments is irrelevant. As long as all payments relating to the same subject matter amount to a value of at least Sfr100,000, such payments must be disclosed.
The report must be in writing in an official national language of Switzerland or in English, and must be approved by the governing or administrative body (Article 964c(4) of the Code of Obligations). Further, the report must be publicly accessible for at least 10 years (Article 964d(2) of the Code of Obligations). The report must provide information on the amount of payments made in total and broken down by type of payment to each authority and project. In the case of in-kind payments, the report must also indicate:
- the type of goods or services;
- their value;
- the method of valuation; and
- their quantity or extent.
If companies must prepare consolidated financial statements, they must prepare a consolidated report on payments to state authorities (group payment report; Article 964a(2) of the Code of Obligations). As this report replaces the reporting of the individual entities, entities whose payments to state authorities are already included in a group payment report prepared in accordance with Swiss or equivalent regulations may dispense with a separate report. Such entities need only indicate in the notes to the annual financial statements the group entity in whose report they have been included and publish this report (Article 964a(3) of the Code of Obligations).
The new transparency obligations for commodity companies demonstrate the continued efforts of the legislature to make the commodity sector more transparent and align the relevant regulations with foreign standards. As the new obligations apply only at present to companies active in the extraction of raw materials, but not to mere commodity traders, the number of affected companies is likely to be limited. However, for companies subject to the new obligations, the preparation and drafting of these reports will require action in the near future, as the new regulations will already apply for the financial year 2022.
In addition, commodity trading companies may soon face additional transparency and reporting obligations, particularly in the context of the indirect counterproposal to the corporate social responsibility initiative, for which the referendum period is soon to expire.
