The first public report in which Shell shows how much tax it pays per country disproves the image that the oil company is evading tax on a large scale. Less than 5% of the profit ($ 35.6 billion in 2018) is in notorious tax havens.
Shell chooses its locations for economic and not just for tax reasons, the company states in the report, which appears Tuesday. Critics will contradict this, tax director Alan McLean realizes.
Shell became discredited last year when it became known that the company does not pay taxes on the profit it makes in the Netherlands. The tax report, which Shell is publishing today, states that the company made a profit of about half a billion euros in the Netherlands in 2018, including refining and the sale of petrol. Also last year the group paid no income tax in the Netherlands.
Where does Shell pay $ 10.4 billion in profit tax?
Proud of contribution
With the publication of the Tax Contribution Report, Shell is one of the first large multinationals that voluntarily provides openness about how much tax it pays per country and how that tax relates to, among other things, turnover, number of employees and profits in the country in question. Multinationals must already send such a country-by-country report to the tax authorities. Politicians and civil society organizations have been calling for these reports to be made public for some time.
“We will not satisfy everyone,” says tax director Alan McLean about what Shell intends to do with the publication. “But we want people to understand us better. We tell our story so that we can conduct the discussion based on the facts. But also because we are proud of how we pay taxes and the contribution we make to the development of the countries in which we operate. ”
Shell explains in its tax report that it did not pay corporate income tax in the Netherlands in 2018, because it could offset losses from previous years. Last year it did not make use of the option to set off foreign losses against the tax assessment in the Netherlands. These so-called liquidation loss settlements earlier ensured that the oil company did not pay a profit tax in the Netherlands.
The left-wing opposition parties have taken the initiative to curtail this compensation for foreign losses. In their eyes it is too generous. The government has taken over this initiative. The government is expected to send a legislative amendment to the House of Representatives before the summer.
Heels in the sand
Shell initially put the heels in the sand when newspaper Trouw revealed that it did not pay a profit tax in the Netherlands. It stated that his tax returns are confidential, as is the case for all companies. Shortly thereafter, the group nevertheless opened up matters in the Netherlands. McLean then promised in a hearing with the House of Representatives that the company would offer even more openness.
Shell’s announcement in the new report that it conforms to the tax rules of the countries in which it operates is fairly obligatory. Civil society organizations and politicians generally accuse multinationals of not evading tax, which is a criminal offense, but avoiding it. That is, pay as little tax as possible within the rules of the law.
Shared starting point
McLean says in an explanation for the FD that Shell pays taxes in the country where the profit is made. The tax report shows that the company broadly meets this socially and politically shared principle.
Shell also shares the principle that business activities in a country must primarily have a commercial reason. The extent to which this principle is complied with is less clear to determine.
Bahamas and Bermuda
Shell has branches in the Bahamas and Bermuda, two well-known tax havens. However, part of the oil trade actually takes place from the Bahamas, including the personnel required for this. The profit that Shell makes with this in the Bahamas remains untaxed because the island group has no income tax. The profit that remains untaxed on Bermuda is distributed to other countries and falls under the applicable tax rules, according to McLean.
De Schot knows that the presence of Shell in some countries is an offense for critics. “We understand that there are different visions of taxes and that some are challenging our vision. Civil society organizations will respond to our presence in countries with a low tax rate. ”
The anger not only concerns notorious tax havens, but also tax-friendly Switzerland, for example. There, Shell made a profit of $ 1.4 billion in 2018 and paid $ 190 million tax. What part of the profit and the tax came from the financing activities in Switzerland and the royalties for trademarks collected there is not broken down in the tax report.
Shell has concentrated group financing in a limited number of countries, McLean explains. Switzerland was chosen because it is a stable country with a large financial sector and qualified staff. The favorable fiscal climate also played a role, he acknowledges. But the interest payments are in line with the market, he continues, and not intended to artificially reduce taxable profit elsewhere.
Shell is moving its Swiss one financing branch to London in 2020. The main reason for this is changing legislation in countries where loans are outstanding, such as the United States, says McLean. Moreover, it is easier for Shell to concentrate financing activities in London. That is why the company is also stopping these activities in Luxembourg.