such as refining or smelting. The focus of Section 13(q) is on
transparency in connection with the payments that resource extraction
issuers make to governments. Those payments are primarily generated by
``upstream'' activities like exploration and extraction and not in
connection with refining or smelting.\371\ Accordingly, we do not
believe that, for purposes of the Section 13(q) rules, the term
``processing'' should cover downstream activities. We also note that
including refining or smelting within the final rules under Section
13(q) would go beyond what is contemplated by the statute.
---------------------------------------------------------------------------

    \371\ In other contexts, Congress has treated midstream
activities like ``processing'' and downstream activities like
``refining'' as separate activities, which further supports our view
that Congress did not intend to include ``refining'' and
``smelting'' as ``processing'' activities. For example, the Sudan
Accountability and Divestment Act of 2007 (``SADA''), which also
relates to resource extraction activities, specifically includes
``processing'' and ``refining'' as two distinct activities in its
list of ``mineral extraction activities'' and ``oil-related
activities . . .'' See 110 Public Law No. 174 (2007). Similarly, the
Commission's oil and gas disclosure rules exclude refining and
processing from the definition of ``oil and gas producing
activities'' (other than field processing of gas to extract liquid
hydrocarbons by the issuer and the upgrading of natural resources
extracted by the issuer other than oil or gas into synthetic oil or
gas). See 17 CFR 210.4-10(a)(16)(ii) (Rule 4-10(a)(16)(ii) of
Regulation S-X).
---------------------------------------------------------------------------

    We received a limited number of comments on the proposed
instruction regarding ``processing.'' One commenter agreed with the
list of activities proposed to be included under the term
``processing'' because it is consistent with the statutory language of
Section 13(q) and in line with established international transparency
standards.\372\ Another commenter stated that it was unclear whether
certain midstream activities that it engaged in would be included
within the definition of ``processing,'' but then did not identify the
activities for which it sought further guidance.\373\
---------------------------------------------------------------------------

    \372\ See letter from PWYP-US (Mar. 16, 2020).
    \373\ See letter from Petrobras.
---------------------------------------------------------------------------

2. ``Export''
    We are adopting the proposed definition of ``export'' to mean the
movement of a resource across an international border from the host
country to another country by an issuer with an ownership interest in
the resource.\374\ Pursuant to this definition, ``export'' will not
include the movement of a resource across an international border by an
issuer that (i) is not engaged in the exploration, extraction, or
processing of oil, natural gas, or minerals and (ii) acquired its
ownership interest in the resource directly or indirectly from a
foreign government or the Federal Government. ``Export'' also will not
include cross-border transportation activities by an entity that is
functioning solely as a service provider, with no ownership interest in
the resource being transported.\375\ This definition is the same
definition of export adopted under the 2016 Rules.
---------------------------------------------------------------------------

    \374\ See Item 2.01(d)(4) of Form SD.
    \375\ See id.
---------------------------------------------------------------------------

    As in the 2016 rulemaking, we received a small number of comments
that recommended defining ``export'' to include trading-related
activities when an issuer makes a payment for the purchase of oil,
natural gas, or minerals sold by a government, including a nationally
owned company (``NOC'').\376\ These commenters indicated that
commodity-trading related payments to governments for the purchase of
oil, natural gas, or minerals has become an important source of revenue
for many resource-rich countries across the globe, and is a commonly
recognized revenue stream in relation to the commercial development of
oil, natural gas, and minerals.\377\
---------------------------------------------------------------------------

    \376\ See letters from PWYP-US (Mar. 16, 2020); and Joseph
Williams, Advocacy Manager, NRGI (Mar. 16, 2020) (J. Williams,
NRGI); see also letter from Pietro Poretti (Feb. 15, 2016).
    \377\ See letters from PWYP-US (Mar. 16, 2020); and J. Williams,
NRGI.
---------------------------------------------------------------------------

    We decline to follow this recommendation for similar reasons
expressed when we elected not to include commodity-trading activities
in connection with the purchase of oil, natural gas, or minerals from a
government, including a NOC, in the 2016 rulemaking.\378\ The adopted

definition of export reflects the significance of the relationship
between upstream activities, such as exploration and extraction, and
the categories of payments to governments identified in the statute. We
do not believe that Section 13(q) was intended to capture payments
related to transportation on a fee-for-service basis across an
international border by a service provider with no ownership interest
in the resource.\379\ We also do not believe that ``export'' was
intended to capture activities with little direct relationship to
upstream or midstream activities, such as commodity trading-related
activities. We also note that, although commenters have stated that
payments in connection with commodity trading-related activities have
become a commonly recognized revenue stream in relation to the
commercial development of oil, gas and minerals,\380\ it does not
appear that any of the other non-U.S. payments-to-governments reporting
regimes (other than the EITI) have included such payments within their
scope.
---------------------------------------------------------------------------

    \378\ See 2016 Rules Adopting Release at Section II.B.3.
    \379\ It is noteworthy that Section 13(q) includes export, but
not transportation, in the list of covered activities. In contrast,
SADA specifically includes ``transporting'' in the definition of
``oil and gas activities'' and ``mineral extraction activities.''
The inclusion of ``transporting'' in SADA, in contrast to the
language of Section 13(q), suggests that the term export means
something different than transportation.
    \380\ See supra note 377.
---------------------------------------------------------------------------

    The adopted definition of export will cover, however, the purchase
of such government-owned resources by a company otherwise engaged in
resource extraction due to the stronger nexus between the movement of
the resource across an international border and the upstream
development activities. We believe this nexus would be particularly
strong in instances where the company is repurchasing government
production entitlements that were originally extracted by that
issuer.\381\
---------------------------------------------------------------------------

    \381\ See infra Section II.J.6. (discussing when and how
payments must be reported in instances where an issuer is
repurchasing government production entitlements that were originally
extracted by that issuer).
---------------------------------------------------------------------------

3. ``Minerals''
    The proposed rules included an instruction on the meaning of the
term ``minerals'' but did not define the term.\382\ The proposed
instruction to Form SD referred issuers to the use of the term
``minerals'' in our other disclosure rules.\383\ We used this approach
based on our belief that the term ``minerals'' is commonly understood
\384\ and includes, at a minimum, any material for which an issuer with
mining operations would provide disclosure under the Commission's
existing or successor disclosure requirements and policies for mining
properties.\385\ We also believed that a flexible approach to this term
would preserve consistency between the term's use under the Section
13(q) rules and its use in our other disclosure requirements and
policies.\386\ As such, the Form SD guidance on the term ``minerals''
would encompass any changes to that term that may be reflected in our
disclosure requirements for mining registrants. In support of this
approach, which is consistent with the Commission's approach in the
2016 rulemaking, we noted that no industry commenter suggested that we
define the term in connection with the 2016 Rules.\387\
---------------------------------------------------------------------------

    \382\ See 2019 Rules Proposing Release at Section II.B.3.
    \383\ See proposed Instruction (13) to Item 2.01 of Form SD,
which stated that ``minerals,'' as used in Item 2.01 of Form SD,
includes any material for which an issuer with mining operations
would provide disclosure under the Commission's existing disclosure
requirements and policies, including Industry Guide 7 or any
successor requirements or policies (see 17 CFR 229.1300 et seq.
(subpart 1300 of Regulation S-K)). The proposed instruction further
stated that ``minerals'' does not include oil and gas resources (as
defined in 17 CFR 210.4-10(a)(16)(D) or any successor provision).
    \384\ The Commission's staff has previously provided similar
guidance. See Disclosure of Payments by Resource Extraction Issuers
FAQ 3 (May 30, 2013) available at https://www.sec.gov/divisions/corpfin/guidance/resourceextraction-faq.htm.
    \385\ In 2018, the Commission revised its disclosure
requirements for mining properties to provide investors with a more
comprehensive understanding of a registrant's mining properties and
to align those disclosure requirements and policies more closely
with current industry and global regulatory practices and standards.
See Release No. 33-10570 (October 31, 2018) [83 FR 66344 (December
26, 2018)]. The new mining property disclosure rules, which are
codified in subpart 1300 of Regulation S-K, will replace the mining
property disclosure guidance in 17 CFR 229.801(g) and 802(g)
(Industry Guide 7) and requirements in 17 CFR 229.102 (Item 102 of
Regulation S-K). Registrants engaged in mining operations must
comply with the new rules for the first fiscal year beginning on or
after January 1, 2021. See Release No. 33-10570 at Section I.
    \386\ For example, new subpart 1300 of Regulation S-K defines
``mineral resource'' to mean a concentration or occurrence of
material of economic interest in or on the Earth's crust in such
form, grade, or quality, and quantity that there are reasonable
prospects for economic extraction. ``Material of economic interest''
is then defined to include ``mineralization, including dumps and
tailings, mineral brines, and other resources extracted on or within
the earth's crust'' while excluding oil and gas resources resulting
from oil and gas producing activities, gases (e.g., helium and
carbon dioxide), geothermal fields, and water. See 17 CFR 229.1300.
Industry Guide 7 similarly does not explicitly define the term
``minerals,'' but does provide a definition of, and guidance
regarding the disclosure of, ``reserves,'' which includes references
to ``minerals'' and ``mineralization.''
    \387\ See 2019 Rules Proposing Release at Section II.B.3 (citing
2016 Rules Adopting Release, note 149 and accompanying text).
---------------------------------------------------------------------------

    We received limited comment on our approach to the term
``minerals.'' One commenter supported the proposed instruction
regarding ``minerals'' and did not believe that further defining the
term was necessary.\388\ Another commenter, however, did not believe
that there was a commonly understood meaning of ``minerals'' and
recommended that we provide a definition for the term.\389\
---------------------------------------------------------------------------

    \388\ See letter from PWYP-US (Mar. 16, 2020).
    \389\ See letter from Keith P. Bishop.
---------------------------------------------------------------------------

    We decline to follow the recommendation of the commenter who
suggested that we define the term ``mineral.'' In this regard, we note
that, in response to the 2019 proposed rulemaking, as well as to the
2016 rulemaking, no industry commenter has requested that we provide a
definition of ``minerals.'' This reinforces our belief that the term
``minerals'' is commonly understood. We also continue to believe that
our flexible approach will preserve consistency with the use of that
term in our other disclosure requirements and policies, and in
particular, with the use of that term under the Commission's new
disclosure rules for mining registrants.\390\
---------------------------------------------------------------------------

    \390\ See subpart 1300 of Regulation S-K.
---------------------------------------------------------------------------

    We are therefore not adopting a separate definition for
``minerals'' and, instead, are adopting the proposed instruction with
one minor revision. Because the new disclosure rules for mining
registrants will be effective, and will supersede the older guidance in
Industry Guide 7, when issuers will be required to comply with the
Section 13(q) rules, the adopted instruction refers solely to the new
mining disclosure rules, and omits the reference to Industry Guide
7.\391\
---------------------------------------------------------------------------

    \391\ See Instruction (13) to Item 2.01 of Form SD.
---------------------------------------------------------------------------

J. Definition of ``Payment''

    Section 13(q) defines ``payment'' to mean a payment that:
     Is made to further the commercial development of oil,
natural gas, or minerals;
     Is not de minimis; and
     Includes taxes, royalties, fees (including license fees),
production entitlements, bonuses, and other material benefits, that the
Commission, consistent with the EITI's guidelines (to the extent
practicable), determines are part of the commonly recognized revenue
stream for the commercial development of oil, natural gas, or
minerals.\392\
---------------------------------------------------------------------------

    \392\ 15 U.S.C. 78m(q)(1)(C).
---------------------------------------------------------------------------

    As with the 2016 Rules, we proposed to define ``payment'' to
include the specific types of payments identified in

the statute, as well as community and social responsibility (``CSR'')
payments that are required by law or contract, payments of certain
dividends, and payments for infrastructure. We also proposed guidance
on the statutory payment categories of royalties, fees, and bonuses,
and addressed in-kind payments.\393\
---------------------------------------------------------------------------

    \393\ See 2019 Rules Proposing Release at Section II.C.
---------------------------------------------------------------------------

    We received only a limited number of comments on the proposed
definition of ``payment'' and the proposed guidance regarding the
payment types. We discuss these comments below along with our reasons
for adopting the proposed definition of ``payment'' and related
guidance.
    In addition to the types of payments expressly included in the
definition of ``payment'' in the statute, Section 13(q) provides that
the Commission include within the definition ``other material
benefits'' that it determines are ``part of the commonly recognized
revenue stream for the commercial development of oil, natural gas, or
minerals.'' \394\ According to Section 13(q), these ``other material
benefits'' must be consistent with the EITI's guidelines ``to the
extent practicable.'' \395\
---------------------------------------------------------------------------

    \394\ 15 U.S.C. 78m(q)(1)(C)(ii).
    \395\ Id.
---------------------------------------------------------------------------

    Some commenters recommended that we include commodity trading-
related payments for the purchase of oil, natural gas, or minerals from
a government, including a NOC, within the definition of ``payment''
because, according to those commenters, those payments have become a
commonly recognized revenue stream for the commercial development of
oil, natural gas, or minerals.\396\ We decline to follow this
recommendation for the same reasons that we rejected the suggestion to
include activities related to such commodity trading within the
definition of export.\397\ We acknowledge that significant payments may
be made by buying/trading companies or similar companies to purchase
natural resources. Nevertheless, we do not believe that purchasing or
trading oil, natural gas, or minerals, even at a level above the ``not
de minimis threshold,'' is on its own sufficiently related to the
``commercial development'' of those resources to warrant being covered
by the final rules, particularly when the rules will require disclosure
of in-kind payments of production entitlements.\398\
---------------------------------------------------------------------------

    \396\ See letters from Oxfam America and Earthrights
International; PWYP-US (Mar. 16, 2020); and J. Williams, NRGI.
    \397\ See supra Section II.I.2.
    \398\ See infra Section II.J.6.
---------------------------------------------------------------------------

    We continue to believe that Section 13(q) directs us to make an
affirmative determination that the other ``material benefits'' are part
of the commonly recognized revenue stream. Accordingly, the other
material benefits specified in the final rules are limited to CSR
payments required by law or contract, dividends, and infrastructure
payments. As was the case with the 2016 Rules, and as discussed in more
detail below, we have determined that these payment types represent
material benefits that are part of the commonly recognized revenue
stream for the commercial development of oil, natural gas, and minerals
and that otherwise meet the definition of payment.
1. Taxes
    Consistent with Section 13(q), the final rules require a resource
extraction issuer to disclose payments made in the form of taxes.\399\
The final rules also include an instruction, as proposed, to clarify
that a resource extraction issuer will be required to disclose payments
for taxes levied on corporate profits, corporate income, and
production, but will not be required to disclose payments for taxes
levied on consumption, such as value added taxes, personal income
taxes, or sales taxes.\400\ We are also adopting the proposed
instruction stating that, if a government levies a payment obligation,
such as a tax or dividend, at the entity level rather than on a per
project basis, a resource extraction issuer may disclose that payment
at the entity level.\401\ Both instructions were also included in the
2016 Rules.
---------------------------------------------------------------------------

    \399\ See Item 2.01(d)(9)(A) of Form SD.
    \400\ See Instruction (9) to Item 2.01 of Form SD.
    \401\ See Instruction (4) to Item 2.01 of Form SD. Pursuant to
this instruction, and as proposed, if an issuer does report a tax at
the entity level, it may omit certain inapplicable electronic tags,
such as a project or business segment tag, for that payment as long
as it provides all other electronic tags, including the tag
identifying the recipient government.
---------------------------------------------------------------------------

    We received a small number of comments on the tax payment reporting
requirement. Some commenters supported the proposed requirement,
including the treatment of taxes levied at the entity level.\402\ One
commenter stated that it is often impossible to identify, on a project
basis, the relevant portion of a given payment obligation that is
imposed at the entity level.\403\ Another commenter indicated that it
is impractical to isolate the corporate income tax payments made on
income generated from the commercial development of oil, natural gas,
or minerals.\404\
---------------------------------------------------------------------------

    \402\ See letters from API (Mar. 16, 2020); Petrobras; and PWYP-
US (Mar. 16, 2020).
    \403\ See letter from API (Mar. 16, 2020).
    \404\ See letter from Petrobras. This commenter urged the
Commission to provide additional guidance on the reporting of tax
payments ``considering the particularities of income tax payments in
each country.'' Id. Providing such detailed guidance would exceed
the scope of this rulemaking. To the extent that issuers have
questions regarding the reporting of tax payments, or any other
payments, on Form SD, they should contact the staff.
---------------------------------------------------------------------------

    A third commenter supported the proposed approach to tax payments
because it is consistent with the approach afforded to tax payments
under the EITI and the other non-U.S. payments-to-governments reporting
regimes.\405\ This commenter, however, recommended that we include a
provision requiring that, if a government requires a corporate tax to
be ring-fenced to a particular project, an issuer must report such
payments at the project level. By way of example, this commenter stated
that the UK imposes such a requirement.\406\ We do not believe this
suggested provision is necessary because the adopted instruction
already provides that tax reporting by the entity level on Form SD is
dependent on the government levying the tax at the entity level.
Moreover, if an issuer listed or registered in the UK is subject to
such a per project tax reporting requirement, it would likely provide
such tax reporting when it submits its Form SD under the alternative
reporting provision.\407\
---------------------------------------------------------------------------

    \405\ See letter from PWYP-US (Mar. 16, 2020).
    \406\ See id.
    \407\ See infra Section II.N.
---------------------------------------------------------------------------

    Another commenter recommended that we require the reporting of tax
payments at the contract level.\408\ We decline to adopt this
recommendation because, even under the 2016 Rules, which used a
contract-based project definition, we permitted the reporting of
corporate taxes levied at the entity level in response to earlier
expressed concerns by commenters about the difficulty of allocating
payments that are made for obligations levied at the entity level, such
as corporate taxes, to the project level.\409\
---------------------------------------------------------------------------

    \408\ See letter from KCSPOG.
    \409\ See Instruction (4) to Item 2.01 of Form SD under the 2016
Rules; see also 2012 Rules Adopting Release, note 155 and
accompanying text.
---------------------------------------------------------------------------

2. Royalties, Fees, and Bonuses
    We are adopting the proposed inclusion of royalties, fees, and
bonuses in the list of payment types required to be disclosed \410\
because Section 13(q) includes them in its definition of ``payment.''
The statute provides ``license fees'' as an example of the types of
fees covered by that term but

does not provide examples of royalties and bonuses.\411\ As under the
2016 Rules, we proposed an instruction to Form SD to provide further
clarification of these terms.\412\ The proposed instruction stated that
royalties include unit-based, value-based, and profit-based royalties;
fees include license fees, rental fees, entry fees, and other
considerations for licenses or concessions; and bonuses include
signature, discovery, and production bonuses.\413\
---------------------------------------------------------------------------

    \410\ See Item 2.01(d)(B), (C), and (E).
    \411\ 15 U.S.C. 78m(q)(1)(C)(ii).
    \412\ See 2019 Rules Proposing Release at Section II.C.2.
    \413\ See proposed Instruction (10) to Form SD in the 2019 Rules
Proposing Release.
---------------------------------------------------------------------------

    We received a limited number of comments on the proposed
instruction. One commenter supported the disaggregation of payments
into the proposed categories of royalties, fees, and bonuses because it
would help the public hold their governments accountable for the
specific types of payments.\414\ Another commenter supported the
inclusion of an instruction that provides a non-exhaustive list of
fees, bonuses, and royalties because providing examples of these
payment types would help companies more accurately interpret the rules'
requirements.\415\ In order to clarify that the list of examples is
non-exhaustive, this commenter recommended revising the proposed
instruction to state that each payment type includes, but is not
limited to, the provided list of examples.\416\
---------------------------------------------------------------------------

    \414\ See letter from KCSPOG.
    \415\ See letter from PWYP-US (Mar. 16, 2020).
    \416\ See id.
---------------------------------------------------------------------------

    While it was our intention that the list of examples for royalties,
fees, and bonuses would be non-exhaustive,\417\ we agree with the
commenter that stating this in the instruction would be a useful
improvement. We are therefore adopting the proposed instruction with
this one modification.\418\
---------------------------------------------------------------------------

    \417\ See 2019 Rules Proposing Release at II.C.2.
    \418\ See Instruction (10) to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    The examples of fees and bonuses included in the instruction are
specifically mentioned in the EITI's guidance as payments that should
be disclosed by EITI participants,\419\ which supports our view that
they are part of the commonly recognized revenue stream. The
instruction also includes examples of royalties.\420\ Although not
mentioned in the EITI's guidance, based on the experience of the
Commission staff's mining engineers and the support of commenters,\421\
we believe that these examples are part of the commonly recognized
revenue stream and that the instruction will provide additional clarity
for issuers. These are only examples, however, and resource extraction
issuers could be required to disclose other types of royalties, fees,
and bonuses, depending on the facts and circumstances.
---------------------------------------------------------------------------

    \419\ See EITI Standard (October 15, 2019) at 22-23.
    \420\ For a discussion of these types of royalties, see World
Bank, Mining Royalties: Their Impact on Investors, Government and
Civil Society (2006), pp.50-54 available at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2006/09/11/000090341_20060911105823/Rendered/PDF/372580Mining0r101OFFICIAL0USE0ONLY1.pdf.
    \421\ See, e.g., letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

3. Dividend Payments
    We are adopting the proposed inclusion of dividends in the list of
payment types required to be disclosed.\422\ We also are adopting the
proposed instruction clarifying that a resource extraction issuer
generally would not need to disclose dividends paid to a government as
a common or ordinary shareholder of the issuer as long as the dividend
is paid to the government under the same terms as other
shareholders.\423\ The issuer would, however, be required to disclose
any dividends paid to a government in lieu of production entitlements
or royalties. Under this approach, ordinary dividend payments would not
be part of the commonly recognized revenue stream because they are not
made to further the commercial development of oil, natural gas, or
minerals.
---------------------------------------------------------------------------

    \422\ See Item 2.01(d)(9)(F) of Form SD.
    \423\ See Instruction (11) to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    This approach is consistent with the approach taken towards
dividend payments in both the 2012 Rules and 2016 Rules. Most of the
commenters who discussed the definition of payments in the earlier
rulemakings either supported or did not object to this approach towards
dividends.\424\
---------------------------------------------------------------------------

    \424\ See 2016 Adopting Release, Section II.C.2.a.; and 2012
Adopting Release at Section II.D.1.b.
---------------------------------------------------------------------------

    Although we received little comment on the treatment of dividend
payments in response to the 2019 proposed rules, the comments that we
received supported our approach. One commenter stated that our proposed
approach would align with the text and Congressional intent of Section
13(q), as dividend payments are material benefits that are part of the
commonly recognized revenue stream, and are recognized by the EU
Directives, ESTMA, and the EITI Standard as payments required to be
disclosed.\425\ As in 2016, no commenter objected to the treatment of
dividend payments.
---------------------------------------------------------------------------

    \425\ See letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

4. Infrastructure Payments
    We are also adopting the proposed inclusion of payments for
infrastructure in the list of payment types required to be
disclosed.\426\ Such payments would include those made to build a road
or railway to further the development of oil, natural gas, or minerals.
As we have previously noted, payments for infrastructure often are in-
kind payments rather than direct monetary payments.\427\ We continue to
believe such payments are ``other material benefits'' that are part of
the commonly recognized revenue stream for the commercial development
of oil, natural gas, or minerals because they are required to be
disclosed under the EITI \428\ and their inclusion as required payments
under Section 13(q) has been supported by commenters since the earliest
rulemaking.\429\
---------------------------------------------------------------------------

    \426\ See Item 2.01(d)(9)(G) of Form SD.
    \427\ See 2019 Rules Proposing Release at Section II.C.4.
    \428\ See EITI Standard at 24.
    \429\ See, e.g., letters from AngloGold Ashanti (Jan. 31, 2011);
Barrick Gold Corporation (Feb. 28, 2011); EarthRights International
(Jan. 26, 2011); Earthworks (Mar. 2, 2011); Global Witness (Feb. 25,
2011) ; ONE (Mar. 2, 2011); and PWYP-US (Feb. 25, 2011).
---------------------------------------------------------------------------

    Our inclusion of infrastructure payments in the list of payment
types required to be disclosed under Section 13(q) continues to find
support in the current rulemaking. As in 2016, no commenter objected to
the inclusion of such payments, and one commenter provided affirmative
support. That commenter indicated that because natural resources are
frequently located in remote or under-developed areas, many extractive
companies, in particular mining companies, make infrastructure-related
payments, which are generally viewed as part of the cost of doing
business in these regions.\430\ According to this commenter,
infrastructure payments make up a commonly recognized revenue stream
from natural resource extraction and are covered payments under the EU
Directives, ESTMA, and the EITI.\431\ We therefore agree with this
commenter that the inclusion of infrastructure payments under Section
13(q) would help support the commitment of the Federal Government to
international transparency promotion efforts, pursuant to Section
13(q).\432\
---------------------------------------------------------------------------

    \430\ See letter from PWYP-US (Mar. 16, 2020).
    \431\ See id..
    \432\ See 15 U.S.C. 78m(q)(2)(E).

---------------------------------------------------------------------------

5. Community and Social Responsibility Payments
    We are adopting the proposed inclusion of CSR payments that are
required by law or contract in the list of payment types required to be
disclosed under Section 13(q).\433\ CSR payments could include, for
example, funds to build or operate a training facility for oil and gas
workers, funds to build housing, payments for tuition or other
educational purposes, and in general payments to support the social or
economic well-being of communities within the country where the
expenditures are made. For the reasons discussed below, we continue to
believe that such CSR payments are part of the commonly recognized
revenue stream for the commercial development of oil, natural gas, or
minerals.
---------------------------------------------------------------------------

    \433\ See Item 2.01(d)(9)(H) of Form SD.
---------------------------------------------------------------------------

    When proposing the inclusion of CSR payments required by law or
contract, we noted that most commenters on the 2016 Rules Proposing
Release that addressed the issue supported the inclusion of CSR
payments.\434\ This view was supported by a broad range of commenters,
including one industry commenter.\435\ Although we received little
comment on this issue in the current rulemaking, the one party that did
comment supported the proposed inclusion of CSR payments required by
law or contract because they are material benefits that are part of the
commonly recognized revenue stream for the commercial development of
oil, natural gas, or minerals, as evidenced by: The required reporting
of mandatory CSR payments by the EITI; the adoption by numerous
countries of provisions in their mining laws and policies that require
extractive companies to make CSR payments; the significant amount of
CSR payments routinely made by oil, gas, and mining companies, which
can total in the millions or, in some cases, billions of dollars
annually; and the fact that many oil, gas, and mining companies already
voluntarily report CSR payments.\436\
---------------------------------------------------------------------------

    \434\ See 2019 Rules Proposing Release at Section II.C.5; and
2016 Rules Adopting Release at Section II.C.2.a.
    \435\ See letter from ExxonMobil (Feb. 16, 2016).
    \436\ See letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    We find the evidence cited by this commenter and those in the 2016
rulemaking to be persuasive.\437\ When determining whether there are
``other material benefits'' that are part of the commonly recognized
revenue stream for the commercial development of oil, natural gas, or
minerals, we are statutorily required, to the extent practicable, to
adopt a determination that is consistent with the EITI's guidance.\438\
We find it instructive that disclosure of CSR payments that are
required by law or contract has been required under the EITI since
2013.\439\ The fact that several resource extraction issuers already
report their voluntary or required CSR payments also supports our
conclusion that such payments are part of the commonly recognized
revenue stream for the commercial development of oil, natural gas, or
minerals.\440\
---------------------------------------------------------------------------

    \437\ For example, in the 2016 rulemaking, one commenter noted
the prevalent discussion of CSR payments in industry conferences,
studies, guidance, and compliance manuals. See letter from Harry G.
Broadman and Bruce H. Searby (Jan. 25, 2016).
    \438\ See 15 U.S.C. 78m(q)(1)(C)(ii).
    \439\ See EITI Standard at 29; see also 2019 Rules Proposing
Release at Section II.C.5.
    \440\ See, e.g., Equinor 2019 Sustainability Report (disclosing
that in 2019 Equinor made $23 million in social investments,
sponsorships, and donations); Newmont 2019 Sustainability Report
(reporting a total of $23.3 million in community development and
donations); and BHP 2019 Sustainability Report (reporting that BHP's
voluntary community investment totaled $93.5 million in 2019).
---------------------------------------------------------------------------

6. In-Kind Payments
    We are adopting the proposed requirement that a resource extraction
issuer must disclose payments that fall within the specified payment
types that are made in-kind rather than through a monetary payment to
the host country government.\441\ Examples include production
entitlement payments \442\ and infrastructure payments. Although no
commenter objected to the inclusion of in-kind payments, a small number
of commenters raised concerns about different aspects of the proposed
instruction providing guidance on how to report in-kind payments.\443\
---------------------------------------------------------------------------

    \441\ See Instruction (12) to Item 2.01 of Form SD.
    \442\ See Item 2.01(d)(9)(D) of Form SD.
    \443\ See letters from API (Mar. 16, 2020); Oxfam America and
Earthrights International; and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    Section 13(q) specifies that the rules require the disclosure of
the type and total amount of payments made for each project and to each
government. Accordingly, the proposed instruction stated that, when
reporting an in-kind payment, a resource extraction issuer must
determine the monetary value of the in-kind payment.\444\ Similar to
the 2016 Rules, the proposed instruction further provided that a
resource extraction issuer must report the in-kind payment at cost, or
if cost is not determinable, fair market value, and provide a brief
description of how the monetary value was calculated.\445\
---------------------------------------------------------------------------

    \444\ See 2019 Rules Proposing Release at Section II.C.6. In
addition, in light of the requirement in Section 13(q) to tag the
information to identify the currency in which the payments were
made, the proposed instruction further stated that issuers providing
a monetary value for in-kind payments must tag the information as
``in-kind'' for purposes of the currency tag.
    \445\ See id.
---------------------------------------------------------------------------

    One commenter objected to the proposed instruction to use
historical cost when determining the monetary value of an in-kind
payment.\446\ The commenter stated that fair market value represents
the best benchmark for valuing in-kind payments because fair market
values are readily available and more relevant to providing
transparency than cost data. The commenter also expressed concern that
publishing specific cost information could result in issuers having to
share business sensitive data with third party competitors.\447\
---------------------------------------------------------------------------

    \446\ See letter from API (Mar. 16, 2020).
    \447\ See id.
---------------------------------------------------------------------------

    We continue to believe that the required disclosure would be more
consistent and comparable if issuers are required to report in-kind
payments at cost and only permitted to report using fair market value
if historical costs are not reasonably available or determinable. We
also believe that adoption of the Modified Project Definition, which
allows for the aggregation of payments, including in-kind payments,
across multiple contracts should mitigate the concern raised about the
publishing of competitively sensitive information.
    Two other commenters supported the proposed instruction requiring
the use of historical cost if determinable, but recommended that we
also require the disclosure of the volume of in-kind payments, where
applicable.\448\ Those commenters stated that such a requirement would
be consistent with the valuing of in-kind payments under the EU
Directives and would enable users of the payment data to understand
better the methodology used to calculate the value of in-kind
payments.\449\ We decline to follow this recommendation because we do
not believe such information is necessary.\450\ The adopted instruction
requires an issuer to provide a brief description of how the monetary
value of an in-kind payment was calculated, which would provide
additional context for assessing the reasonableness of the
disclosure.\451\ An issuer may disclose volume information when
providing this description if it

believes such information would be appropriate under the circumstances.
---------------------------------------------------------------------------

    \448\ See letters from Oxfam America and Earthrights
International; and PWYP-US (Mar. 16, 2020).
    \449\ See id.
    \450\ See 2019 Rules Proposing Release at Section II.C.6 (citing
letter from ExxonMobil (Mar. 8, 2016)).
    \451\ See Instruction (12) to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    As proposed, the adopted instruction clarifies how to report
payments made to a foreign government or the Federal Government to
purchase the resources associated with production entitlements that are
reported in-kind. An issuer's purchase of production entitlements
affects the ultimate cost of such entitlements. Accordingly, if the
issuer is required to report an in-kind production entitlement payment
under the rules and then repurchases the resources associated with the
production entitlement within the same fiscal year, the issuer will be
required to use the purchase price (rather than using the valuation
methods described above) when reporting the in-kind value of the
production entitlement.\452\
---------------------------------------------------------------------------

    \452\ See id.
---------------------------------------------------------------------------

    If the in-kind production entitlement payment and the subsequent
purchase are made in different fiscal years and the purchase price is
greater than the previously reported value of the in-kind payment, the
issuer will be required to report the difference in values in the
latter fiscal year if that amount exceeds the ``not de minimis''
threshold. In other situations, such as when the purchase price in a
subsequent fiscal year is less than the in-kind value already reported,
no disclosure relating to the purchase price would be required.\453\
---------------------------------------------------------------------------

    \453\ See id.
---------------------------------------------------------------------------

7. Accounting Considerations
    We are adopting the proposed item on Form SD stating that the
payment disclosure must be made on a cash basis instead of an accrual
basis and need not be audited.\454\ This is consistent with the
approach that the Commission proposed and adopted in the 2016
rulemaking.\455\ We continue to believe that requiring reporting to be
made on a cash basis is the best approach because: (1) These payment
disclosures are largely cash-based, so reporting them on a cash basis
would limit the associated compliance burden; and (2) requiring a
consistent approach to reporting would improve comparability and
therefore result in greater transparency.
---------------------------------------------------------------------------

    \454\ See Item 2.01(a)(2) of Form SD.
    \455\ See the 2016 Adopting Release at Section II.C.3.
---------------------------------------------------------------------------

    No commenter opposed the proposed ``cash basis'' requirement, and
one commenter supported it. This commenter stated that the proposed
approach is consistent with the approach under the EITI and other non-
U.S. payments-to-governments reporting regimes.\456\
---------------------------------------------------------------------------

    \456\ See letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    When proposing that the payment information is not required to be
audited, we noted that the EITI approach is different from Section
13(q).\457\ Under the EITI, companies and the host country's government
generally each submit payment information confidentially to an
independent administrator selected by the country's multi-stakeholder
group, frequently an independent auditor, who reconciles the
information provided by the companies and the government and then
produces a report.\458\ In contrast, Section 13(q) does not contemplate
that an administrator would audit and reconcile the information or
produce a report as a result of the audit and reconciliation. Moreover,
while Section 13(q) refers to ``payments,'' it does not require the
information to be included in the financial statements. In addition, by
not imposing an audit requirement for the payment information, we are
mindful of the concerns raised by some previous commenters that such an
auditing requirement would significantly increase implementation and
ongoing reporting costs.\459\
---------------------------------------------------------------------------

    \457\ See 2019 Rules Proposing Release at Section II.C.8.
    \458\ See EITI Standard at 26.
    \459\ See, e.g., letters from Anadarko Petroleum Corporation
(Mar. 2, 2011); API (Jan. 28, 2011); British Petroleum p.l.c. (Feb.
11, 2011); Chevron Corporation (Jan. 28, 2011); Ernst & Young (Jan.
31, 2011); New York State Bar Association, Securities Regulation
Committee (Mar. 1, 2011); Petroleo Brasileiro S.A. (Feb. 21, 2011);
and PricewaterhouseCoopers LLP (Mar. 2, 2011).
---------------------------------------------------------------------------

K. Anti-Evasion

    We are adopting the proposed provision that will require disclosure
with respect to an activity or payment that, although not within the
categories included in the final rules, is part of a plan or scheme to
evade the disclosure required under Section 13(q).\460\ This provision
is designed to emphasize substance over the form or characterization of
payments. We believe that it covers most of the situations that have
concerned commenters in prior rulemakings. For example, the provision
would cover payments that were substituted for otherwise reportable
payments in an attempt to evade the disclosure rules,\461\ as well as
activities and payments that were structured, split, or aggregated in
an attempt to avoid application of the rules.\462\ Similarly, a
resource extraction issuer could not avoid disclosure by improperly
characterizing an activity as transportation that would otherwise be
covered under the rules, or by making a payment to the government via a
third party in order to avoid disclosure under the rules.
---------------------------------------------------------------------------

    \460\ See 17 CFR 240.13q-1(b). This provision is identical to
the one included in the 2016 Rules.
    \461\ See, e.g., letter from Elise J. Bean (Feb. 16, 2016).
    \462\ See, e.g., letter from PWYP-US (Feb. 16, 2016).
---------------------------------------------------------------------------

    We received a limited number of comments that addressed the
proposed anti-evasion provision.\463\ Some commenters recommended
specifically stating, to align more closely with the EU Directives and
ESTMA, that activities and payments must not be artificially
structured, split, or aggregated to avoid the application of the
rules.\464\ Another commenter recommended that, because a government
official may demand that a transaction be structured a certain way to
avoid application of the rules, we strengthen the anti-evasion
provision to prevent an issuer in such circumstances from claiming that
it is just following the demands of the government and is not part of a
plan or scheme to evade the disclosure required under Section
13(q).\465\ We decline to adopt either recommendation because we
believe that the proposed principles-based anti-evasion provision is
broad enough, and the most effective way, to prohibit the evasive
activity in these, as well as other, cases.\466\
---------------------------------------------------------------------------

    \463\ See letters from Better Markets; Oxfam America and
Earthrights International; and PWYP-US (Mar. 16, 2020).
    \464\ See letters from Oxfam America and Earthrights
International; and PWYP-US (Mar. 16, 2020).
    \465\ See letter from Better Markets.
    \466\ For example, an issuer would be required to report
payments characterized or structured as related to exploratory
activities, without applying the delayed reporting provision, when
in fact they are payments related to development activities.
---------------------------------------------------------------------------

L. Annual Report Requirement

1. Form SD
    Section 13(q) mandates that a resource extraction issuer provide
the payment disclosure required by that section in an annual report but
otherwise does not specify the location of the disclosure, either in
terms of a specific form or in terms of location within a form.\467\
For the following reasons, and consistent with the 2016 Rules, we are
adopting the proposed requirement that resource extraction issuers
provide the required disclosure about payments on Form SD.\468\
---------------------------------------------------------------------------

    \467\ See 15 U.S.C. 78m(q)(2)(A).
    \468\ See 17 CFR 240.13q-1(a). As proposed, the amended Form SD
will require an issuer to include a brief statement in the body of
the form in an item entitled, ``Disclosure of Payments by Resource
Extraction Issuers,'' directing readers to the detailed payment
information provided in the exhibits to the form. See Item
2.01(a)(3) of Form SD.
---------------------------------------------------------------------------

    Form SD is already used for specialized disclosure not included
within an issuer's periodic or current

reports, specifically, the disclosure required by the rule implementing
Section 1502 of the Dodd-Frank Act.\469\ As such, we believe that using
Form SD would facilitate interested parties' ability to locate the
disclosure. In this regard, we disagree with the commenter that opposed
the use of Form SD because it believed that using the same form as is
used for conflict minerals disclosure would unnecessarily confuse users
of the payment information and cause them to conflate the two
issues.\470\ Because the amendment to Form SD includes the Section
13(q) disclosure requirements in its own section (Section 2), distinct
from the conflict minerals requirements in Section 1 of that Form, we
believe that any user confusion would be kept to a minimum.
---------------------------------------------------------------------------

    \469\ 17 CFR 240.13p-1 (Rule 13p-1). See also Exchange Act
Release No. 34-67716 (Aug. 22, 2012) [77 FR 56273 (Sept. 12, 2012)]
(``Conflict Minerals Release'').
    \470\ See letter from PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    We also believe that using Form SD would address the concerns
expressed by issuers in prior rulemakings about having to provide the
disclosure in their Exchange Act annual reports on Forms 10-K, 20-F or
40-F.\471\ For example, the adopted approach should alleviate the
concern that the disclosure will be subject to the officer
certifications required by 17 CFR 240.13a-14 and 240.15d-14 (Exchange
Act Rules 13a-14 and 15d-14). It also will allow the Commission, as
discussed below, to adjust the timing of the submission without
directly affecting the broader Exchange Act disclosure framework.\472\
---------------------------------------------------------------------------

    \471\ See 2012 Rules Adopting Release, notes 366-370 and
accompanying text. Under the rules proposed in the 2012 Rules
Proposing Release, a resource extraction issuer would have been
required to furnish the payment information in its annual report on
Form 10-K, Form 20-F, or Form 40-F. One commenter continued to
support this approach after the 2012 Rules Adopting Release. See
letter from Susan Rose-Ackerman (Mar. 28, 2014) (``[t]here is no
need for the cost of a separate report.'').
    \472\ In this regard, we considered permitting the resource
extraction payment disclosure to be submitted as an amendment to
Form 10-K, 20-F, or 40-F, as applicable, but we are concerned that
this might give the false impression that a correction had been made
to a previous filing. See also 2012 Rules Adopting Release, n.379
and accompanying text.
---------------------------------------------------------------------------

    Section 13(q) also does not specifically mandate the time period in
which a resource extraction issuer must provide the disclosure. We are
adopting the proposed requirement that an issuer report the payments
made in its last fiscal year.\473\ We continue to believe that fiscal
year reporting would limit resource extraction issuers' compliance
costs by allowing them to use their existing tracking and reporting
systems for their public reports to also track and report payments
under Section 13(q).
---------------------------------------------------------------------------

    \473\ See Item 2.01(a)(1) of Form SD.
---------------------------------------------------------------------------

    We also considered the possibility that certain resource extraction
issuers may be required to submit two reports on Form SD every year if
we use a reporting period based on the fiscal year and they are subject
to the May 31st conflict minerals disclosure deadline.\474\
Nevertheless, we continue to believe that the fiscal year is the
appropriate reporting period for the payment disclosure. We believe it
would reduce resource extraction issuers' compliance costs when
compared to a fixed, annual reporting requirement by allowing them to
use their existing tracking and reporting systems for their public
reports to also track and report payments under Section 13(q). In
addition, although minimizing the number of Forms SD an issuer would
need to submit if it was also subject to the conflict minerals
disclosure rules could have benefits, we do not believe that those
benefits outweigh those arising from a reporting regime tailored to a
resource extraction issuer's fiscal year.\475\
---------------------------------------------------------------------------

    \474\ General Instruction B.1 of Form SD. See also Exchange Act
Rule 13p-1.
    \475\ Of the 414 companies that we estimate would be subject to
the final rules, only 50 filed a Form SD pursuant to Rule 13p-1 in
2019. In addition, we note that the conflict minerals reporting
regime adopted a uniform reporting period, in part, because such a
period allows component suppliers that are part of a manufacturer's
supply chain to provide reports to their upstream purchasers only
once a year. See Conflict Minerals Release, note 352 and
accompanying text. The same reasoning does not apply to the issuer-
driven disclosure under the Section 13(q) rules.
---------------------------------------------------------------------------

2. Annual Deadline for Form SD
    We proposed a Form SD submission deadline that differed depending
on a resource extraction issuer's fiscal year-end. We proposed to
require an issuer with a fiscal year ending on or before June 30 to
submit Form SD no later than March 31 in the calendar year following
its most recent fiscal year. For an issuer with a fiscal year ending
after June 30, we proposed the Form SD submission deadline to be no
later than March 31 in the second calendar year following its most
recent fiscal year.\476\ This approach differed from the 2016 Rules,
which required all resource extraction issuers to submit Form SD on
EDGAR no later than 150 days after the end of the issuer's most recent
fiscal year. We based the 2016 deadline in part on the need to avoid a
conflict with the deadline for an issuer's annual report on Form 10-K,
20-F, or 40-F under the Exchange Act.\477\ When proposing the different
annual reporting deadline in 2019, we explained that, although we
continued to believe that it is reasonable to provide a deadline that
would be later than an issuer's Exchange Act annual report deadline, in
light of the concerns about compliance burdens under the 2016 Rules, we
were proposing a submission deadline for Form SD that is longer than
the 150 day deadline.\478\
---------------------------------------------------------------------------

    \476\ See 2019 Rules Proposing Release at Section II.H.
    \477\ See 2016 Adopting Release at Section II.G.3.
    \478\ See 2019 Rules Proposing Release at Section II.H.
---------------------------------------------------------------------------

    Several commenters objected to the proposed annual deadline for
submitting Form SD.\479\ Noting that the proposed reporting deadline
would be significantly longer than the 2016 reporting deadline,
particularly for calendar year-end companies, most of those commenters
stated that the proposed reporting deadline would limit the usefulness
of the disclosed payment information and undermine its effectiveness
for citizens, investors, and other data users.\480\ For example, one
commenter stated that, under the proposed deadline, for a calendar
year-end company, there would be 465 days between the end of the fiscal
year and the deadline for reporting payments for that fiscal year,
which would unnecessarily limit benefits to citizens and
investors.\481\ Some commenters recommended that we instead reinstate
the annual report deadline under the 2016 Rules (i.e., 150 days after
the end of the issuer's most recent fiscal year).\482\
---------------------------------------------------------------------------

    \479\ See letters from Sens. Cardin et al.; EITI Civil Society
Board (Mar. 13, 2020); PolicyAlert!; Eric Postel; Public Citizen;
and PWYP-US (Mar. 16, 2020).
    \480\ See, e.g., letters from Sens. Cardin et al.; EITI Civil
Society Board; Eric Postel; Public Citizen; and PWYP-US (Mar. 16,
2020).
    \481\ See letter from PWYP-US (Mar. 16, 2020).
    \482\ See, e.g., letters from EITI Civil Society Board; Eric
Postel; Public Citizen; and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    We understand commenters' concerns regarding adopting an annual
report deadline that could significantly limit the usefulness of the
payment disclosures. We also, however, believe that the annual report
deadline should be longer than the 150-day deadline under the 2016
Rules so that it does not interfere with an issuer's annual reporting
obligations under the Exchange Act.
    Accordingly, we are adopting an annual deadline for Form SD that
requires an issuer to submit Form SD no later than 270 days following
the end of its most recently completed fiscal year.\483\ Although this
deadline is longer than the deadline imposed under the 2016 Rules, it
is significantly shorter

than what we proposed. We believe that this annual report deadline
appropriately balances the interest of users in maintaining the
effectiveness of the payment disclosures with the interest of issuers
in reducing the compliance burdens of the Section 13(q) rules. We also
believe that reducing the likelihood that the filing of the Form SD
will interfere with an issuer's annual reporting obligations under the
Exchange Act is consistent with the Commission's statutory duty to
adopt rules that promote efficiency in U.S. capital markets.\484\
---------------------------------------------------------------------------

    \483\ See General Instruction B.2. to Form SD.
    \484\ See supra note 232.
---------------------------------------------------------------------------

M. Exhibits and Interactive Data Format Requirements

    As required by Section 13(q),\485\ and as proposed, the final rules
will require a resource extraction issuer to submit the required
disclosure on EDGAR in an XBRL exhibit to Form SD.\486\ Providing the
required disclosure elements in a machine readable (electronically
tagged) format will enable users easily to extract, aggregate, and
analyze the information in a manner that is most useful to them. For
example, it will allow the information received from the issuers to be
converted by EDGAR and other commonly used software and services into
an easily readable tabular format.
---------------------------------------------------------------------------

    \485\ Section 13(q) provides that the rules shall require that
the information included in the annual report of a resource
extraction issuer be submitted in an interactive data format. See 15
U.S.C. 78m(q)(2)(C). and 15 U.S.C. 78m(q)(2)(D)(ii). The Commission
has defined an ``interactive data file'' to be the interactive data
submitted in a machine-readable format. See 17 CFR 232.11; Release
No. 33-9002 (Jan. 14, 2009) [74 FR 6776 (Feb. 10, 2009)], 6778, note
50.
    \486\ See Item 2.01(a)(5) of Form SD.
---------------------------------------------------------------------------

    When proposing to require the use of XBRL as the interactive data
format, we noted that most commenters on the 2016 Rules Proposing
Release that addressed the issue supported the use of XBRL, but did not
similarly support the use of Inline XBRL.\487\ Inline XBRL is a
particular form of XBRL that allows filers to embed XBRL data directly
into an HTML document, eliminating the need to tag a copy of the
information in a separate XBRL exhibit.
---------------------------------------------------------------------------

    \487\ See 2019 Rules Adopting Release at Section II.K.
---------------------------------------------------------------------------

    The Commission recently adopted rule amendments to require the use
of the Inline XBRL format for the submission of operating company
financial statement information and mutual fund risk/return
summaries.\488\ One commenter recommended that we require the use of
Inline XBRL for the Section 13(q) payment disclosure.\489\ Another
commenter, however, supported the proposed use of XBRL and was
``agnostic as to whether conventional (XML-based) XBRL or Inline (HTML-
based XBRL) is adopted.\490\ Like the proposed rules, however, the
final rules do not require a resource extraction issuer to use Inline
XBRL when submitting the Section 13(q) payment information. Given the
nature of the disclosure required by the Section 13(q) rules, which is
primarily an exhibit with tabular data, we continue to believe that
Inline XBRL would not improve the usefulness or presentation of the
required disclosure.
---------------------------------------------------------------------------

    \488\ See Release No. 33-10514 (Jun. 28, 2018) [83 FR 40846
(Jul. 16, 2018)].
    \489\ See letter from PWYP-US (Mar. 16, 2020) (stating that
Inline XBRL would be useful because, in the reports filed under the
EU Directives and Canada's ESTMA, issuers include narrative,
context, and clarifying footnotes in addition to the statutorily
required data). In this regard, however, the final rules require
that the alternative reports must be tagged using XBRL.
    \490\ Letter from XBRL US (Mar. 16, 2020).
---------------------------------------------------------------------------

    Under the final rules, and consistent with the statute, a resource
extraction issuer will be required to submit the payment information in
XBRL using electronic tags--a taxonomy of defined reporting elements--
that identify, for any payment required to be disclosed:
     The total amounts of the payments, by payment type; \491\
---------------------------------------------------------------------------

    \491\ For example, payment types could be royalties, bonuses,
taxes, fees, or production entitlements.
---------------------------------------------------------------------------

     The currency used to make the payments;
     The financial period in which the payments were made;
     The business segment of the resource extraction issuer
that made the payments;
     The government that received the payments, and the country
in which the government is located; \492\ and
---------------------------------------------------------------------------

    \492\ An issuer must provide an electronic tag identifying the
government for each national and subnational government payee.
---------------------------------------------------------------------------

     The project of the resource extraction issuer to which the
payments relate.\493\
---------------------------------------------------------------------------

    \493\ See Item 2.01(a)(5) of Form SD.
---------------------------------------------------------------------------

    In addition to the electronic tags specifically required by the
statute, a resource extraction issuer will also be required, as
proposed, to provide and tag the type and total amount of payments, by
payment type, made for each project and the type and total amount of
payments, by payment type, for all projects made to each
government.\494\ These additional tags relate to information that is
specifically required to be included in the resource extraction
issuer's annual report by Section 13(q).\495\
---------------------------------------------------------------------------

    \494\ See Item 2.01(a)(5)(i) through (ii).
    \495\ See Section 13(q)(2)(A)(i) through (ii).
---------------------------------------------------------------------------

    The final rules will also require resource extraction issuers, as
proposed, to tag the particular resource that is the subject of
commercial development, the method of extraction, and the country and
major subnational political jurisdiction of the project.\496\ While
these three items of information also would be included in the project
description, we believe that having separate electronic tags for these
items will further enhance the usefulness of the data with an
insignificant corresponding increase in compliance costs.
---------------------------------------------------------------------------

    \496\ See Item 2.01(a)(5)(ix) through (xi).
---------------------------------------------------------------------------

    For the country in which the government and project is located and
the major subnational geographic location of a project, the final rules
require, as proposed, that the issuer use an electronic tag that is
consistent with the appropriate ISO code.\497\ As some previous
commenters pointed out, such use would standardize references to those
geographic locations and thereby help to reduce confusion caused by a
particular project description.\498\
---------------------------------------------------------------------------

    \497\ See Instruction (3) to Item 2.01 of Form SD. ISO 3166-1
pertains to countries whereas ISO 3166-2 pertains to major
subdivisions in the listed countries.
    \498\ See 2016 Rules Adopting Release at Section II.K.3.
---------------------------------------------------------------------------

    Consistent with the statute, the final rules will require a
resource extraction issuer to include an electronic tag that identifies
the currency used to make the payments.\499\ The statute also requires
a resource extraction issuer to present the type and total amount of
payments made for each project and to each government, but does not
specify how the issuer should report the total amounts. We believe that
the statutory requirement to provide a tag identifying the currency
used to make the payment, coupled with the requirement to disclose the
total amount of payments by payment type for each project and to each
government, requires issuers to perform currency conversions when
payments are made in multiple currencies.
---------------------------------------------------------------------------

    \499\ See Item 2.01(a)(5)(iv) of Form SD.
---------------------------------------------------------------------------

    We are adopting the instruction to Form SD, as proposed, clarifying
that issuers will be required to report the amount of payments made for
each payment type, and the total amount of payments made for each
project and to each government, in U.S. dollars or in the issuer's
reporting currency if not U.S. dollars.\500\ We understand that

issuers may have concerns regarding the compliance costs related to
making payments in multiple currencies and being required to report the
information in another currency.\501\ As we did in the 2016 Rules,\502\
in order to address those concerns, we are adopting the proposed
instruction that allows a resource extraction issuer to choose to
calculate the currency conversion between the currency in which the
payment was made and U.S. dollars or the issuer's reporting currency,
as applicable, in one of three ways:
---------------------------------------------------------------------------

    \500\ See Instruction 2 to Item 2.01 of Form SD. Foreign private
issuers may currently present their financial statements in a
currency other than U.S. dollars for purposes of Securities Act
registration and Exchange Act registration and reporting. See 17 CFR
210.3-20 (Rule 3-20 of Regulation S-X).
    \501\ See 2019 Rules Proposing Release at Section II.K.
    \502\ See 2016 Adopting Release at Section II.K.1.
---------------------------------------------------------------------------

     By translating the expenses at the exchange rate existing
at the time the payment is made;
     By using a weighted average of the exchange rates during
the period; or
     Based on the exchange rate as of the issuer's fiscal year
end.\503\
---------------------------------------------------------------------------

    \503\ See Instruction 2 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    No commenter opposed this instruction, and the one commenter that
addressed the Commission's identical currency conversion approach in
the 2016 rulemaking supported it.\504\
---------------------------------------------------------------------------

    \504\ See letter from Petrobras (Feb. 16, 2016) (stating that
the three proposed methods for calculating the currency conversion
when payments are made in multiple currencies provide issuers with
sufficient options to address any possible concerns about compliance
costs and comparability of the disclosure among issuers).
---------------------------------------------------------------------------

    The adopted instruction requires a resource extraction issuer to
disclose the method used to calculate the currency conversion. In
addition, as proposed, in order to avoid confusion, the issuer will be
required to choose a consistent method for all such currency
conversions within a particular Form SD.\505\
---------------------------------------------------------------------------

    \505\ See Instruction 2 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

    Consistent with the statute, the final rules will require a
resource extraction issuer to include an electronic tag that identifies
the business segment of the resource extraction issuer that made the
payments.\506\ We are adopting the proposed definition of ``business
segment'' to mean a business segment consistent with the reportable
segments used by the resource extraction issuer for purposes of
financial reporting.\507\ Defining ``business segment'' in this way
would enable issuers to report the information according to how they
currently report their business operations, which should help to limit
compliance costs.
---------------------------------------------------------------------------

    \506\ See Item 2.01(a)(5)(vi) of Form SD.
    \507\ See Item 2.01(d)(1) of Form SD. The term ``reportable
segment'' is defined in FASB ASC Topic 280, Segment Reporting, and
IFRS 8, Operating Segments. We did not receive any comments on the
proposed definition of ``business segment.''
---------------------------------------------------------------------------

    Finally, to the extent that payments, such as corporate income
taxes and dividends, are made for obligations levied at the entity
level, issuers will be able to omit certain tags that may be
inapplicable (e.g., project tag, business segment tag) for those
payment types. Issuers will, however, be required to provide all other
electronic tags, including the tag identifying the recipient
government.\508\
---------------------------------------------------------------------------

    \508\ See Instruction 4 to Item 2.01 of Form SD.
---------------------------------------------------------------------------

N. Alternative Reporting

1. Alternative Reporting Requirements
    As noted above, several countries have implemented resource
extraction payment disclosure laws.\509\ In light of these
developments, and with a view towards limiting compliance costs, we are
adopting the proposed provision that will allow issuers to meet the
requirements of the Section 13(q) rules, in certain circumstances, by
providing disclosures that comply with a foreign jurisdiction's
reporting regime. Specifically, this provision would apply if the
Commission has determined that the alternative reporting regime
requires disclosure that satisfies the transparency objectives of
Section 13(q).\510\ The Commission adopted a similar approach to
alternative reporting in connection with the 2016 Rules.\511\ As in the
2016 rulemaking, all of the commenters that addressed the issue
supported this approach.\512\
---------------------------------------------------------------------------

    \509\ See supra note 20.
    \510\ See Item 2.01(c) of Form SD.
    \511\ See 2016 Rules Adopting Release at Section II.J.2.
    \512\ See, e.g., letters from API (Mar. 16, 2020); BHP; BP
America; Chamber; Eni; Equinor; PWYP-US (Mar. 16, 2020); Rio Tinto;
Royal Dutch Shell; SAF; and Total (Feb. 10, 2020).
---------------------------------------------------------------------------

    If the Commission has determined that the foreign reporting regime
requires disclosure that satisfies the transparency objectives of
Section 13(q), the alternative reporting provision will allow an issuer
subject to the foreign reporting regime to submit the report it
prepared under the foreign requirements in lieu of the report that
would otherwise be required by our disclosure rules, subject to certain
conditions. This framework for alternative reporting will, at least in
part, allow a resource extraction issuer to avoid the costs of having
to prepare a separate report meeting the requirements of our Section
13(q) disclosure rules when it already submits a report pursuant to
another jurisdiction's requirements deemed by the Commission to satisfy
Section 13(q)'s transparency objectives.
    An issuer will only be permitted to use an alternative report for
an approved foreign jurisdiction or regime if the issuer was subject to
the resource extraction payment disclosure requirements of that
jurisdiction or regime and had made the report prepared in accordance
with that jurisdiction's requirements publicly available prior to
submitting it to the Commission.\513\ An issuer choosing to avail
itself of this accommodation will be required to submit as an exhibit
to Form SD the same report that it previously made publicly available
in accordance with the approved alternative jurisdiction's
requirements.\514\ The issuer also will be required to state in the
body of its Form SD that it is relying on this accommodation and
identify the alternative reporting regime for which the report was
prepared.\515\
---------------------------------------------------------------------------

    \513\ See Item 2.01(c)(1) through (2) of Form SD.
    \514\ See Item 2.01(c)(2) of Form SD. The format of the report
could differ to the extent necessary to comply with the conditions
placed by the Commission on the alternative reporting accommodation.
For example, the report may not have been originally submitted in
the home jurisdiction in XBRL or may not have been in English, both
of which are requirements under the rules we are adopting.
    \515\ See Item 2.01(c)(3) of Form SD.
---------------------------------------------------------------------------

    In addition, we are adopting the proposed requirement that the
alternative reports must be tagged using XBRL.\516\ We believe that
requiring a consistent data format for all reports submitted to the
Commission would enhance the ability of users to access the data and
create their own compilations in a manner most useful to them. We also
believe that requiring a consistent data format would better enable the
Commission's staff to provide any additional compilations of Section
13(q) information.
---------------------------------------------------------------------------

    \516\ See Item 2.01(c)(4) of Form SD.
---------------------------------------------------------------------------

    An issuer relying on the alternative reporting accommodation will
also be required to provide a fair and accurate English translation of
the entire report if prepared in a foreign language.\517\ Given the
specificity of the disclosure and the electronic tagging required under
Rule 13q-1 and Form SD, we do not believe it would be appropriate to
permit an English summary of a foreign language document that is being
provided as an alternative report.\518\ Other than the XBRL and English
translation

requirements, an issuer that elects to use the alternative reporting
option will not be required to meet a requirement under the final rules
to the extent that the alternative reporting regime imposes a different
requirement.
---------------------------------------------------------------------------

    \517\ See Item 2.01(c)(5) of Form SD.
    \518\ 17 CFR 232.306 (Rule 306 of Regulation S-T) requires that
all electronic filings and submissions be in the English language.
If a filing or submission requires the inclusion of a foreign
language document, Rule 306 requires that the document be translated
into English in accordance with 17 CFR 230.403(c) (Securities Act
Rule 403(c)) or 17 CFR 240.12b-12(d) (Exchange Act Rule 12b-12(d)).
---------------------------------------------------------------------------

    Similar to the 2016 Rules, a resource extraction issuer will be
able to follow the submission deadline of an approved alternative
jurisdiction if it submits a notice on or before the due date of its
Form SD indicating its intent to submit the alternative report using
the alternative jurisdiction's deadline.\519\ We proposed that if a
resource extraction issuer fails to submit such notice on a timely
basis, or submits such a notice but fails to submit the alternative
report within four business days of the alternative jurisdiction's
deadline, as proposed, it will not be able to rely on the alternative
reporting accommodation for the following fiscal year.\520\ One
commenter recommended that we permit an issuer to submit an alternative
report up to ten business days after the deadline of the approved
alternative jurisdiction.\521\ Although we believe that four business
days is a reasonable amount of time to file the alternative
report,\522\ we are adopting a seven business day deadline instead of
the proposed four business day deadline to address concerns about the
need for additional time for an issuer to submit its alternative
report.
---------------------------------------------------------------------------

    \519\ See Item 2.01(c)(6) of Form SD.
    \520\ See 2019 Rules Proposing Release at Section II.L. We
proposed the four business day deadline because it is consistent
with other Commission reporting deadlines. See, e.g., General
Instruction B.1. to Form 8-K.
    \521\ See letter from PWYP-US (Mar. 16, 2020).
    \522\ See supra note 520.
---------------------------------------------------------------------------

    We anticipate making determinations about whether a foreign
jurisdiction's disclosure requirements satisfy Section 13(q)'s
transparency objectives either on our own initiative or pursuant to an
application submitted by an issuer or a jurisdiction. We will then
publish the determinations in the form of a Commission order. We
anticipate considering, among others, the following criteria in
determining whether a foreign jurisdiction's reporting regime requires
disclosure that satisfies Section 13(q)'s transparency objectives: (1)
The types of activities that trigger disclosure; (2) the types of
payments that are required to be disclosed; and (3) whether project-
level disclosure is required and how ``project'' is defined. We also
anticipate considering other factors as appropriate or necessary under
the circumstances.
    Applications could be submitted by issuers, governments, industry
groups, and trade associations.\523\ Applicants would follow the
procedures set forth in 17 CFR 240.0-13 (Rule 0-13 of the Exchange Act)
to request recognition of other jurisdictions' reporting regimes as
satisfying Section 13(q)'s transparency objectives.\524\ Pursuant to
Rule 0-13, the applicant will be required to include supporting
documents, and, once complete, the application will be referred to the
Commission's staff for review.\525\ Also pursuant to Rule 0-13, the
Commission will publish a notice in the Federal Register that a
complete application has been submitted and allow for public
comment.\526\ The Commission could also, in its sole discretion,
schedule a hearing before the Commission on the matter addressed by the
application.\527\
---------------------------------------------------------------------------

    \523\ See 17 CFR 240.13q-1(c).
    \524\ Rule 0-13 permits an application to be filed with the
Commission to request a ``substituted compliance order'' under the
Exchange Act.
    \525\ See 17 CFR 240.0-13(e) and (g).
    \526\ See 17 CFR 240.0-13(h).
    \527\ See 17 CFR 240.0-13(i).
---------------------------------------------------------------------------

2. Recognition of EU Directives, U.K.'s Reports on Payments to
Governments Regulations, Norway's Regulations on Country-by-Country
Reporting, and Canada's ESTMA as Alternative Reporting Regimes
    In conjunction with our adoption of the final rules, we are issuing
an order recognizing the EU Directives, the UK's Reports on Payments to
Governments Regulations 2014,\528\ Norway's Regulations on Country-by-
Country Reporting,\529\ and Canada's ESTMA as alternative reporting
regimes that satisfy the transparency objectives of Section 13(q) for
purposes of alternative reporting under the final rules, subject to
certain conditions. We similarly issued a concurrent order when
adopting the 2016 Rules.\530\ Several commenters requested that we
issue such an order concurrent with or shortly after adoption of these
final rules.\531\
---------------------------------------------------------------------------

    \528\ 2014 UK Statutory Instrument No. 3209.
    \529\ FOR-2013-12-20-1682.
    \530\ See Release No. 34-78169 (Jun. 16, 2016) [81 FR 49163
(July 27, 2016)] (stating that a resource extraction issuer that
files a report complying with the reporting requirements of the EU
Directives, ESTMA, and the USEITI would satisfy its disclosure
obligations under Rule 13q-1).
    \531\ See, e.g., letters from API (Mar. 16, 2020); BHP; BP
America; Chamber; Equinor; and Rio Tinto.
---------------------------------------------------------------------------

    We have determined that these disclosure regimes satisfy the
transparency objectives of Section 13(q). For example, all four regimes
require annual, public disclosure, including the identity of the filer;
include the same or similar activities within the scope of their laws
or regulations; require project-level reporting; cover similar payment
types; cover similar controlled entities and subsidiaries; and require
foreign subnational payee reporting. Although we acknowledge
differences between these regimes and the final rules,\532\ we do not
believe that such differences support reaching a different conclusion,
particularly in light of the requirements we are imposing on
alternative reporting.\533\ We note that, among those commenters that
addressed the issue, there was agreement that the Commission should
allow alternative reporting under the EU Directives, U.K.'s Reports on
Payments to Governments Regulations, Norway's Regulations on Country-
by-Country Reporting, and Canada's ESTMA.\534\ This further persuades
us that it is appropriate at this time to grant these regimes
alternative reporting status in their current form.
---------------------------------------------------------------------------

    \532\ For example, the EU Directives impose disclosure
requirements for logging companies in addition to oil, natural gas,
and mining companies.
    \533\ For example, the final rules require alternative reports
to be submitted in XBRL format. See supra Section II.N.1.
    \534\ See, e.g., letters from API (Mar. 16, 2020); BHP; BP
America; Chamber; Equinor; Rio Tinto; and Total.
---------------------------------------------------------------------------

O. Compliance Date

    Section 13(q) provides that, with respect to each resource
extraction issuer, the final rules issued under that section shall take
effect on the date on which the resource extraction issuer is required
to submit an annual report relating to the issuer's fiscal year that
ends not earlier than one year after the date on which the Commission
issues the final rules under Section 13(q).\535\ We are adopting the
proposed two-year transition period so that a resource extraction
issuer will be required to comply with Rule 13q-1 and Form SD for
fiscal years ending no earlier than two years after the effective date
of the final rules. For example, if the rules were to become effective
on March 1, 2021, the compliance date for an issuer with a December 31
fiscal year-end would be Monday, September 30, 2024 (i.e., 270 days
after its fiscal year end of December 31, 2023).
---------------------------------------------------------------------------

    \535\ 15 U.S.C. 78m(q)(2)(F).
---------------------------------------------------------------------------

    This two-year transition period is the same as the transition
period for the 2016 Rules. In this regard, we note that issuers that
have not previously been subject to an alternative reporting regime
would likely have to modify their internal systems to track, record,
and report the required payment information. The two-year transition
period should provide these issuers with sufficient time to establish
the

necessary systems and procedures to capture and track all the required
payment information before the fiscal year covered by their first Form
SD. It also should afford issuers an opportunity to make any other
necessary arrangements to comply with Section 13(q) and the final
rules, such as seeking exemptive relief on a case-by-case basis.

P. Other Matters

    Pursuant to the Congressional Review Act,\536\ the Office of
Information and Regulatory Affairs has designated these rules as a
``major rule,'' as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    \536\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

    Separately, if any of the provisions of these rules, or the
application thereof to any person or circumstance, is held to be
invalid, such invalidity shall not affect other provisions or
application of such provisions to other persons or circumstances that
can be given effect without the invalid provision or application.
Implementation of these rules has been ongoing since 2011. As a result,
we are specifying how the Commission intends for the rule to operate in
the event that it is challenged and a court rejects the rule's approach
to either of the two matters that have been a particular focus of
dispute among the commenters: The definition of project and the need
for, and scope of, exemptions. If the definition of project is
challenged and invalidated or otherwise not permitted to take effect,
issuers must continue to make all the disclosures required by Section
13(q), but issuers may utilize their own reasonable definition of
project while the Commission reconsiders the project definition. In
such circumstances, allowing issuers to utilize their own reasonable
definition of project (which they will need to identify in Form SD)
until such time as a revised rule may be issued and all litigation
connected to it is resolved would be an appropriate interim alternative
for the reasons discussed in the 2012 Rules Proposing Release. Further,
if one or more of the rule's exemptions is invalidated or otherwise not
permitted to take effect, resource-extraction issuers must continue to
make all of the required disclosures under this rule, but the
Commission, while reconsidering how to proceed with any possible
revised rulemaking, retains the authority under Section 36(a) of the
Exchange Act to issue exemptive orders as appropriate.

III. Economic Analysis

A. Introduction and Baseline

    As discussed above, Section 13(q) mandates a new disclosure
provision under the Exchange Act that requires resource extraction
issuers to identify and report payments they make to foreign
governments or the Federal Government relating to the commercial
development of oil, natural gas, or minerals. It does so to help foster
payment transparency in resource-rich countries. According to some
commenters, increased transparency of payments may further increased
accountability and anti-corruption efforts in resource-rich
countries.\537\
---------------------------------------------------------------------------

    \537\ See, e.g., letters from Oxfam American and Earthrights
International; and PWYP-US (Mar. 16, 2020).
---------------------------------------------------------------------------

    Exchange Act Section 23(a)(2) requires us to consider the impact
that any new rule would have on competition. In addition, Section 3(f)
of the Exchange Act directs us, when engaging in rulemaking that
requires us to consider or determine whether an action is necessary or
appropriate in the public interest, to consider, in addition to the
protection of investors, whether the action will promote efficiency,
competition, and capital formation.
    As such, we have considered the costs and benefits that would
result from the final rules, as well as the potential effects on
efficiency, competition, and capital formation. Many of the potential
economic effects of the final rules stem from the statutory mandate,
while others stem from the discretion we are exercising in implementing
the statutory mandate. As noted above, our discretionary choices have
been informed, in part, by the disapproval of the 2016 Rules under the
CRA and in particular the CRA's prohibition on promulgating a new rule
in substantially the same form. The following discussion addresses the
costs and benefits that might result from both the statute and our
discretionary choices.\538\
---------------------------------------------------------------------------

    \538\ Because our discretionary choices are informed by the
statutory mandate, our discussion of the benefits and costs of those
choices necessarily involves the benefits and costs of the
underlying statute.
---------------------------------------------------------------------------

    The baseline the Commission uses to analyze the potential effects
of the final rules is the current set of legal requirements and market
practices.\539\ To the extent that resource extraction issuers are not
already tracking and disclosing the information required under the
rules, the final rules likely will have a significant impact on their
disclosure practices and in addition increase aggregate compliance
costs. The overall magnitude of the potential costs of the final
disclosure requirements will depend on the number of affected issuers
and individual issuers' costs of compliance.\540\ In addition, the
final rules could impose burdens on competition, although as discussed
elsewhere in this release, the anti-competitive effects of transparency
disclosures have been called into question based upon resource
extraction issuers' experiences with the disclosure regimes in Europe
and Canada.\541\ In any event, the changes we are making from the 2016
Rules are intended to mitigate any such effects.
---------------------------------------------------------------------------

    \539\ See supra Sections I.A. through B. for a discussion of the
current legal requirements and significant international
transparency promotion regimes that affect market practices.
    \540\ Based on the available data, however, it does not appear
that the increased compliance costs would be significant on a per
issuer basis. See infra Section III.D.11.
    \541\ See supra Section II.
---------------------------------------------------------------------------

    One commenter asserted that the baseline contains significant gaps
and fails to recognize current market trends.\542\ According to this
commenter, we do not consider that the global transparency landscape
has changed dramatically since the 2016 Rules; specifically that the
international standards of reporting have moved towards fully public,
project-level reporting, defined at the contract-level consistent with
every other transparency regime, and towards a consistent definition of
``not de minimis.'' We agree with the commenter that the global
transparency landscape has evolved since the 2016 Rules. This has had
an effect on the competitive landscape as well, because some of the
competitors of U.S.-reporting issuers are now required to provide
similar disclosures. We disagree with the commenter that our baseline
fails to recognize that change. Indeed, in the baseline we discuss and
quantify the number of potential issuers that are reporting under
existing regimes and the potential effect on their costs.
---------------------------------------------------------------------------

    \542\ See letter from Oxfam America and Earthrights
International.
---------------------------------------------------------------------------

    We expect that the final rules will affect both U.S. issuers and
foreign issuers that meet the definition of ``resource extraction
issuer'' in much the same way, except for issuers already subject to
requirements adopted in the EU, EEA, UK, or Canada, as discussed above
in Section I.B. The discussion below describes the Commission's
understanding of the markets and issuers that would be affected by the
final rules.\543\
---------------------------------------------------------------------------

    \543\ In addition to our analysis against the baseline, we have
also noted other instances where the final rules differ in their
economic effects from the 2016 Rules. To be clear, however, our
assessment of the final rules' economic effects is measured against
the current state of the world in which issuers are not required by
U.S. law to disclose resource extraction payments.

---------------------------------------------------------------------------

    To estimate the number of potentially affected issuers, we use data
from Exchange Act annual reports filed on Forms 10-K, 20-F, and 40-F
for the period January 1, 2018, through December 31, 2019. We consider
all issuers with oil, natural gas, and mining Standard Industrial
Classification (``SIC'') codes \544\ as likely to be resource
extraction issuers. We also include issuers that do not have the above-
mentioned oil, natural gas, and mining SIC codes (because their primary
business is not necessarily resource extraction) as likely resource
extraction issuers if they have some resource extraction operations,
such as ownership of mines. In addition, we remove issuers that use
oil, natural gas, and mining SIC codes but appear to be more accurately
classified under other SIC codes based on the disclosed nature of their
business. Finally, we exclude royalty trusts from our analysis because
we believe it is uncommon for such companies to make the types of
payments that will be covered by the final rules.
---------------------------------------------------------------------------

    \544\ Specifically, the oil, natural gas, and mining SIC codes
considered are 1000, 1011, 1021, 1031, 1040, 1041, 1044, 1061, 1081,
1090, 1094, 1099, 1220, 1221, 1222, 1231, 1311, 1321, 1381, 1382,
1389, 1400, 2911, 3330, 3331, 3334, and 3339.
---------------------------------------------------------------------------

    From these filings, we estimate that the number of potentially
affected issuers is 678. We note that this number does not reflect the
number of issuers that actually made resource extraction payments to
governments in the period under consideration but rather represents the
estimated number of issuers that might make such payments.
    In determining which issuers are likely to bear the full costs of
compliance with the final rules, we make three adjustments to the list
of affected issuers. First, we exclude issuers that are smaller
reporting companies or emerging growth companies and that are not
subject to alternative reporting regimes that the Commission has deemed
to satisfy the transparency objectives of Section 13(q), as the final
rules provide an exemption for those issuers. Second, we exclude
issuers that are subject to disclosure requirements in foreign
jurisdictions that generally require more granular disclosure than the
final rules and therefore are likely already bearing compliance costs
for such disclosure.\545\ Third, we exclude small issuers that likely
could not have made any payment above the de minimis amount of $100,000
to any government entity in the period January 1, 2018, through
December 31, 2019.\546\
---------------------------------------------------------------------------

    \545\ We note that such issuers may incur certain tagging and
translation costs. See infra Section III.D.5. Given that, because we
exclude these issuers from the number of potentially affected
issuers, our estimates of the aggregate compliance costs associated
with the final rules may be understated to the extent of these
costs.
    \546\ In a change from the Proposing release, the final rules
define ``not de minimis'' as a payment that equals or exceeds
$100,000. The analysis in this section reflects this change.
---------------------------------------------------------------------------

    First, among the 678 issuers that we estimate will be affected by
the final rules, 214 reported being smaller reporting companies (SRCs)
and 191 reported being emerging growth companies (EGCs) in the period
January 1, 2018, through December 31, 2019. There are 84 issuers that
reported both SRC and EGC status during this period. There are also 69
issuers with SRC or EGC status that were subject to alternative
reporting regimes that, concurrent with adoption of the final rules,
the Commission is deeming to satisfy the transparency objectives of
Section 13(q). These issuers are therefore not eligible for the EGC/SRC
exemption. Subtracting the 69 non-exempt issuers that are either SRCs
or EGCs from the total of 321 issuers with SRC or EGC status results in
252 SRCs and EGCs that are potentially exempt from the final rules.
Subtracting these 252 SRCs and EGCs from the sample of 678 potentially
affected issuers results in 426 issuers that will be subject to the
final rules.
    To address the second consideration, we searched the filed annual
forms for issuers that have a business address, are incorporated, or
are listed on markets in the EEA, UK, or Canada.\547\ For purposes of
our analysis, we assume that issuers in these jurisdictions already are
providing more granular resource extraction payment disclosure than the
disclosure that will be required by the final rules and that the
additional costs to comply with the final rules will be much lower than
costs for other issuers.\548\ We identified 177 such issuers (including
the 69 previously mentioned SRCs and EGCs). For purposes of our
economic analysis, we assume that these issuers will not have to incur
significant compliance costs related to the final rules, as they are
already tracking, recording, and reporting resource extraction payment
disclosure at a more granular level.\549\
---------------------------------------------------------------------------

    \547\ We assume that an issuer is subject to the EEA or Canadian
rules if it is listed on a stock exchange located in one of these
jurisdictions or if it has a business address or is incorporated in
the EEA or Canada and its total assets are greater than $50 million.
The latter criterion is a proxy for multipronged eligibility
criteria underlying both EEA and Canadian rules that include issuer
assets, revenues, and the number of employees.
    \548\ We are adopting an alternative reporting option for
resource extraction issuers that are subject to foreign disclosure
requirements that the Commission determines satisfy the transparency
objectives of Section 13(q). See infra Section III.D.5 for a
discussion concerning how this alternative reporting option could
potentially reduce compliance costs to a negligible amount for
eligible issuers.
    \549\ The primary costs for issuers using the alternative
reporting provision would be those related to electronic tagging and
translating. See supra Section II.N.1. See infra Section III.D.5 for
a discussion concerning the costs related to tagging and
translating.
---------------------------------------------------------------------------

    Third, among the remaining 249 issuers (i.e., 426 minus 177) we
searched for issuers that, in the most recent fiscal year as of the
date of their Exchange Act annual report filing, reported that they are
shell companies and thus have no or only nominal operations, or have
both revenues and absolute value net cash flows from investing
activities of less than the de minimis payment threshold of $100,000.
Under these financial constraints, such issuers are unlikely to have
made any non-de minimis and otherwise reportable payments to
governments and therefore are unlikely to be subject to the final
reporting requirements. We identified 12 such issuers.
    Taking these estimates of the number of excluded issuers together,
we estimate that approximately 237 issuers (i.e., 678 minus 252 minus
177 minus 12) will bear the full costs of compliance with the final
rules.\550\
---------------------------------------------------------------------------

    \550\ Because it may be unclear at the beginning of a financial
period whether payments from an issuer will exceed the de minimis
threshold by the end of such period, an excluded issuer may incur
costs to collect the information to be reported under the final
rules even if that issuer is not subsequently required to file an
annual report on Form SD. Our estimate thus may understate the
aggregate compliance costs associated with the final rules.
---------------------------------------------------------------------------

    In the following economic analysis, we discuss the potential
benefits and costs and likely effects on efficiency, competition, and
capital formation that might result from both the new reporting
requirement mandated by Congress and from the specific implementation
choices that we have made in formulating the final rules.\551\ We
analyze these potential economic effects through a qualitative and,
where possible, a quantitative discussion of the potential costs and
benefits that might result from the payment reporting requirement
(Sections III. B and III.C) and our specific implementation choices
(Section III.D), respectively. Several commenters provided us with data
on compliance costs, which we

have used to estimate the potential initial and ongoing compliance
costs for issuers likely to bear the full costs of compliance with the
final rules.\552\
---------------------------------------------------------------------------

    \551\ Our consideration of potential benefits and costs and
likely effects on efficiency, competition, and capital formation
also is reflected throughout the discussion in Section II above.
    \552\ See infra Section III.D.11.
---------------------------------------------------------------------------

    Although aspects of the final rules are similar to the 2016 Rules,
the final rules include several changes from the 2016 Rules that we
believe will help limit the resulting compliance costs and burdens
without significantly affecting the potential benefits that the Section
13(q) disclosure is designed to achieve. These changes include: (1) The
Modified Project Definition, which requires disclosure at the national
and major subnational political jurisdiction, as opposed to the
contract level; (2) the addition of two new conditional exemptions for
situations in which a foreign law or a pre-existing contract prohibits
the required disclosure; (3) the addition of an exemption for smaller
reporting companies (SRCs) and emerging growth companies (EGCs); (4)
revisions to the definition of ``control'' to exclude entities or
operations in which an issuer has a proportionate interest; (5)
limitations on liability for the required disclosure by deeming the
payment information to be furnished to, but not filed with, the
Commission; (6) revisions to the filing deadline; and (7) the addition
of transitional relief for issuers that have recently completed their
U.S. initial public offerings. As explained below, we believe that
these changes taken as a whole would meaningfully reduce, in the
aggregate, the compliance costs and burdens for issuers compared to the
compliance costs and burden estimated for the 2016 Rules.

B. Potential Benefits Resulting From the Payment Reporting Requirement

    Section 13(q) seeks increased transparency about the payments that
companies in the extractive industries make to foreign governments and
the Federal Government. While this statutory goal and intended benefits
are of potential global significance, the potential positive economic
effects that may result cannot be readily quantified with any
precision. The current empirical evidence on the direct causal effect
of increased transparency in the resource extraction sector on societal
outcomes is inconclusive,\553\ and several academic papers have noted
the inherent difficulty in empirically validating a causal link between
transparency interventions and governance improvements.\554\
---------------------------------------------------------------------------

    \553\ For positive findings, see Caitlin C. Corrigan, ``Breaking
the resource curse: Transparency in the natural resource sector and
the extractive industries transparency initiative,'' Resources
Policy, 40 (2014), 17-30 (finding that the negative effect of
resource abundance on GDP per capita, the capacity of the government
to formulate and implement sound policies and the level of rule of
law is mitigated in EITI countries but noting that the EITI has
little effect on the level of democracy, political stability and
corruption (the author also submitted a comment letter in the 2016
rulemaking attaching an updated version of the study; see Letter
from Caitlin C. Corrigan (Feb. 16, 2016))); Liz David-Barrett and
Ken Okamura, ``The Transparency Paradox: Why Do Corrupt Countries
Join EITI?'', Working Paper No. 38, European Research Centre for
Anti-Corruption and State-Building (Nov. 2013) (finding that EITI
compliant countries gain access to increased aid the further they
progress through the EITI implementation process and that EITI
achieves results in terms of reducing corruption), available at
https://eiti.org/document/transparency-paradox-why-do-corrupt-countries-join-eiti, Maya Schmaljohann, ``Enhancing Foreign Direct
Investment via Transparency? Evaluating the Effects of the EITI on
FDI,'' University of Heidelberg Discussion Paper Series No. 538
(Jan. 2013) (finding that joining the EITI increases the ratio of
the net foreign direct investment inflow to GDP by two percentage
points); Paul F. Villar and Elissaios Papyrakis, ``Evaluating the
Impact of the Extractive Industries Transparency Initiative (EITI)
on Corruption in Zambia. The Extractive Industries and Society,
(2017), forthcoming (finding that EITI implementation reduced
corruption in Zambia); Elissaios Papyrakis, Matthias Rieger, and
Emma Gilberthorpe, ``Corruption and the Extractive Industries
Transparency Initiative,'' Journal of Development Studies, 53
(2017), 295-309 (finding that EITI reduces corruption). For negative
findings, see [Ouml]lcer, Dilan (2009): Extracting the Maximum from
the EITI (Development Centre Working Papers No. 276): Organisation
for Economic Cooperation and Development (finding that the EITI has
not been able to significantly lower corruption levels); Benjamin J.
Sovacool, Goetz Walter, Thijs Van De Graaf, and Nathan Andrews,
``Energy Governance, Transnational Rules, and the Resource Curse:
Exploring the Effectiveness of the Extractive Industries
Transparency Initiative (EITI),'' World Development, 83 (2017), 179-
192 (finding that the first 16 countries that attained EITI
compliance do not perform better than other countries or their own
past performance in terms of accountability, political stability,
government effectiveness, regulatory quality, rule of law,
corruption, foreign direct investment, and GDP growth); Kerem Oge,
``Which transparency matters? Compliance with anti-corruption
efforts in extractive industries,'' Resources Policy, 49 (2016), 41-
50 (finding that EITI disclosure had no significant effect on
corruption in EITI countries).
    \554\ See Andr[eacute]s Mej[iacute]a Acosta, The Impact and
Effectiveness of Accountability and Transparency Initiatives: The
Governance of Natural Resources, 31 DEV. POL'Y REV. s89-s105 (2013);
Alexandra Gillies and Antoine Heuty, Does Transparency Work? The
Challenges of Measurement and Effectiveness in Resource-Rich
Countries, YALE J. INT'L AFF. 25-42 (2011).
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    Importantly, Congress has directed us to promulgate a rule
requiring disclosure of resource extraction payments. Thus, in
assessing the potential benefits resulting from the rule, we believe it
reasonable to rely on Congress' determination that such a rule will
produce the transparency benefits by providing significant and useful
payment information to persons seeking to understand the resource
extraction payment flows to foreign governments.\555\ In that regard,
we note that Congress did not repeal the mandate under Section 13(q),
and in fact, some members of Congress who supported the joint
resolution to disapprove the 2016 Rules also expressed their ``strong
support'' for the transparency and anti-corruption objectives of the
rules.\556\ In addition, none of the industry commenters over the years
has expressed the view that the disclosures required by Section 13(q)
would fail to help produce anti-corruption and accountability benefits.
---------------------------------------------------------------------------

    \555\ We note that these intended benefits differ from the
investor protection benefits that our disclosure rules typically
strive to achieve.
    \556\ See supra note 30.
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    To the extent that the Section 13(q) disclosures increase
transparency and reduce corruption, they could increase efficiency and
capital formation either directly abroad or indirectly in the United
States. While the objectives of Section 13(q) may not appear to be ones
that would necessarily generate measurable, direct economic benefits to
investors or issuers, investors and issuers might benefit from the
final rules' indirect effects. In the following paragraphs, we discuss
existing theoretical arguments and empirical evidence that reduced
corruption and better governance could have longer term positive
impacts on economic growth and investment in certain countries where
the affected issuers operate, which could in turn benefit issuers and
their shareholders.
    Although the research and data available at this time do not allow
us to draw any firm conclusions, we have considered several theoretical
causal explanations for why reductions in corruption may increase
economic growth and political stability, which in turn may reduce
investor risk.\557\ High levels of corruption could introduce
inefficiencies in market prices as a result of increased political
risks and the potential awarding of projects to companies for reasons
other than the merit of their bids. This, in turn, could prop up
inefficient companies and limit investment opportunities for others.
These potential distortions could have a negative impact on the
economies of countries with high corruption, particularly to the extent
that potential revenue streams are diminished or diverted.
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    \557\ See, e.g., Pranab Bardhan, Corruption and Development: A
Review of Issues, 35 J. ECON. LITERATURE 1320-1346 (1997); Jakob
Svensson, Eight Questions about Corruption, 19(3) J. ECON. PERSP.
19-42 (2005) (``Svensson Study'').
---------------------------------------------------------------------------

    Additionally, the cost of corrupt expenditures, direct or indirect,
impacts profitability, and, if the cost is

sufficiently high, some potentially economically efficient or
productive investments may not be made. Thus, reducing corruption could
increase the number of productive investments and the level of
profitability of each investment and could lead to improved efficiency
in the allocation of talent, technology, and capital. Insofar as these
effects are realized, each of them could benefit issuers operating in
countries with reduced corruption levels. These and other
considerations form a basis for several dynamic general equilibrium
models predicting a negative relationship between corruption and
economic development.\558\
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    \558\ See, e.g., Isaac Ehrlich and Francis Lui, Bureaucratic
Corruption and Endogenous Economic Growth, 107(7) J. POL. ECON. 270-
293 (1999); Keith Blackburn, Niloy Bose, and M. Emanrul Haque, The
Incidence and Persistence of Corruption in Economic Development, 30
J. ECON. DYNAMICS & CONTROL 2447-2467 (2006); Carlos Leite and Jens
Weidmann, Does Mother Nature Corrupt? Natural Resources, Corruption,
and Economic Growth (Int'l Monetary Fund, Working Paper No. 99/85,
July 1999).
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    A number of empirical studies have also shown that reducing
corruption might result in an increase in the level of GDP and a higher
rate of economic growth through more private investments, better
deployment of human capital, and political stability.\559\ Other
studies find that corruption reduces economic growth, both directly and
indirectly, through lower investments.\560\ To the extent that
increased transparency could lead to a reduction in corruption and, in
turn, improved political stability and investment climate, some
investors may consider such factors in their investment decisions,
including when pricing resource extraction assets of affected issuers
operating in these countries.\561\
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    \559\ See, e.g., Paulo Mauro, The Effects of Corruption on
Growth, Investment and Government Expenditure: A Cross-Country
Analysis, in CORRUPTION & THE GLOBAL ECONOMY 83-107, (Kimberly Ann
Elliot ed., 1997); Helene Poirson, Economic Security, Private
Investment, and Growth in Developing Countries (Int'l Monetary Fund,
Working Paper No. 98/4, Jan. 1998); Institute for Economics and
Peace, Peace and Corruption 2015: Lowering Corruption--A
Transformative Factor for Peace (2015) available at https://reliefweb.int/sites/reliefweb.int/files/resources/Peace%20and%20Corruption.pdf.
    \560\ See Pak Hung Mo, Corruption and Economic Growth, 29 J.
COMP. ECON. 66 (2001); Kwabena Gyimah-Brempong, Corruption, Economic
Growth, and Income Inequality in Africa, 3 ECON. GOVERNANCE 183-209
(2002); Pierre-Guillaume M[eacute]on and Khalid Sekkat, Does
corruption grease or sand the wheels of growth?, 122 PUBLIC CHOICE
69-97 (2005).
    \561\ Several studies present evidence that reduction in
corruption increases foreign direct investments. See, e.g., Shang-
Jin Wei, How Taxing is Corruption on International Investors?,
(Nat'l Bureau of Econ. Research, Working Paper 6030 (1997); George
Abed and Hamid Davoodi, Corruption, Structural Reforms, and Economic
Performance in the Transition Economies (Int'l Monetary Fund,
Working Paper No. 00/132 (July 2000).
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    There also could be positive externalities from increased investor
confidence to the extent that improved economic growth and investment
climate could benefit other issuers working in those countries.
Although we believe the evidence is presently too inconclusive to allow
us to predict the likelihood that such a result would occur, there is
some empirical evidence suggesting that lower levels of corruption
might reduce the cost of capital and improve valuations for some
issuers.\562\
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    \562\ See Daniel Kaufmann and Shang-Jin Wei, Does `Grease Money'
Speed Up the Wheels of Commerce? (Nat'l Bureau of Econ. Research,
Working Paper 7093 (1999) (finding, based on survey evidence, that
firms that pay fewer bribes have lower, not higher, cost of
capital); Charles Lee and David Ng, Corruption and International
Valuation: Does Virtue Pay?, 18(4) J. INVESTING 23-41 (2009)
(finding that firms from more corrupt countries trade at
significantly lower market multiples).
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    One commenter provided additional citations of studies that present
empirical evidence on the role of transparency in reducing
corruption.\563\ Those studies, according to the commenter, show a
positive relation between transparency and the lowering of corruption
and improvements in socio-economic and human development indicators.
The commenter also argued that transparency is a necessary, but not
sufficient condition for reducing corruption. Two commenters also
listed studies that show benefits from disclosure and transparency
improvements in extractive industries.\564\ One of these commenters
pointed out, however, that there are a number of studies that show
mixed or no evidence of a positive effect of transparency in the
extractive industries on reduction in corruption.\565\ One commenter
also provided several concrete examples from countries such as Ghana,
Indonesia, and Mozambique on how the transparency resulting from the
disclosure of payments to governments from issuers under the European
Union regime has enabled citizens to more effectively hold companies
and governments accountable.\566\
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    \563\ See letter from Kaufmann (May 1, 2020).
    \564\ See letters from Kaufmann and PWYP-US (Mar. 16, 2020).
    \565\ See letter from Kaufmann.
    \566\ See letter from PWYP-US (Mar. 16, 2020).
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    We also note that global transparency efforts such as the EITI and
others are relatively new, which makes it difficult at this time to
draw any firm empirical conclusions about the potential long-term
benefits that such transparency regimes may produce for resource-rich
countries. Many studies suggest a possible link between improvements in
transparency, which they measure as a resource-rich country joining the
EITI, and increases in GDP and net foreign direct investments,
reduction in conflict and unrest, and effects on economic
development.\567\ The causal mechanisms involved, however, are complex
(impacted by myriad factors) and it may take several decades before
those mechanisms yield empirically verifiable social gains. While some
of these studies provide useful insight into the potential benefits of
resource payment transparency regimes, we believe that there are
limitations associated with each of these studies that make it
difficult for us to draw firm conclusions based on their findings.
Additionally, other factors could affect both corruption and economic
development (e.g., a country's institutions), making it difficult to
detect a causal relationship between the former and the latter.
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    \567\ See letter from C. Corrigan (Feb. 16, 2016) (referring to
her earlier study: Caitlin Corrigan, Breaking the Resource Curse:
Transparency in the Natural Resource Sector and the Extractive
Industries Transparency Initiative, 41 RESOURCES POL'Y 17-30 (2014);
Letter from PWYP-US (Feb. 16, 2016) (referring to Fernando
Londo[ntilde]o, Does Joining the Extractive Industries Transparency
Initiative Have an Impact on Extractive and Non-Extractive FDI
Inflows? (2014), available at http://gppreview.com/wp-content/uploads/2014/02/Londono-F.pdf) (``Londo[ntilde]o Study'') and Maya
Schmaljohann, Enhancing Foreign Direct Investment via Transparency?
Evaluating the Effects of the EITI on FDI (Jan. 2013), available at
http://archiv.ub.uni-heidelberg.de/volltextserver/14368/1/Schmaljohann_2013_dp538.pdf (``Schmaljohann Study''))); Letter from
ONE Campaign (Mar. 16, 2016).
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    Some commenters on the 2019 Rules Proposing Release criticized us
for not discussing in detail the benefits that the disclosures required
by Section 13(q) could provide to investors.\568\ According to those
commenters, the rules, especially the contract-level project
definition, provide very useful information to investors in making
investment decisions. We discuss the effects of our choice of project
definition in more detail below. Although we do not believe this is the
primary purpose of the required disclosures, we acknowledge the
possibility that the disclosures might provide potentially useful
information to certain investors. Notwithstanding the commenters'
views, we believe the direct incremental benefit to investors from the
Section 13(q) disclosures is limited. Most impacted issuers, other than
smaller reporting companies, are already

required to disclose their most significant operational and financial
risks \569\ as well as certain financial information related to the
geographic areas in which they operate, in their Exchange Act annual
reports.\570\ We discuss this issue in greater detail in Section
III.D.1 below where we discuss the implications of the definition of
``project.''
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    \568\ See letters from Oxfam America and Earthrights
International; and PWYP-US (Mar. 16, 2020).
    \569\ See 17 CFR 229.305 and 229.503.
    \570\ See 17 CFR 229.101(d).
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C. Potential Costs Resulting From the Payment Reporting Requirement

    The disclosures required by Section 13(q) could result in direct
compliance costs for affected issuers. The direct compliance costs will
stem from the time and effort, to the extent necessary, to modify
issuers' core enterprise resource planning systems and financial
reporting systems to capture and report payment data at the project
level, for each type of payment, government payee, and currency of
payment, to the extent that such payments are not currently tracked by
the issuers' reporting systems. Examples of modifications that may be
necessary include establishing additional granularity in existing
coding structures (e.g., splitting accounts that contain both
government and non-government payment amounts), developing a mechanism
to appropriately capture data by ``project,'' building new collection
tools within financial reporting systems, establishing a trading
partner structure to identify and provide granularity around government
entities, establishing transaction types to accommodate different types
of payment (e.g., royalties, taxes, or bonuses), and developing a
systematic approach to handle ``in-kind'' payments. We estimate the
direct compliance costs resulting from the final rules in Section
III.D.11 below.
    Several commenters asserted that Section 13(q)'s mandated
disclosures could result in competitive harm to issuers, especially
those that are not currently subject to payment disclosure in other
jurisdictions.\571\ These commenters did not provide specific
information or data that would allow us to assess the likelihood or
magnitude of any such effect. As a general matter, we acknowledge that
the final rules' mandated disclosures may have under certain
circumstances adverse competitive effects on resource extraction
issuers covered by the final rules; however, we are not aware of, and
no commenter has provided us evidence of, any information demonstrating
that the resource extraction companies that have been subject to
similar foreign disclosure requirements for several years have
experienced significant adverse competitive effects. We base this on