Shell plans to publish global tax strategy to assuage criticism

Multinational oil giant Shell has told members of the Dutch finance committee that it plans to publish details of its global tax strategy following criticism of how the multinational uses the tax system to minimise tax liability and pays zero tax in the Netherlands, where it is headquartered

At a Dutch parliamentary hearing on future EU plans to tackle tax evasion as well as ongoing compliance with the OECD’s Base Erosion and Profit Shifting (BEPS) measures to reduce aggressive corporate tax avoidance, Shell was called up to explain its current tax strategy to representatives of the Dutch parliament’s finance committee, chaired by Dutch representative Anne Mulder, a former Dutch finance minister.

Shell vice president for taxation Alan McLean told the hearing that the company is loss making, ‘as a natural consequence of the Dutch tax system’.

‘When there is a loss there is no profit tax to be paid, so the arithmetic is simple,’ McLean told the hearing.

McLean said Shell planned to disclose details of its global tax strategy later this year in an attempt to deflect criticism and improve levels of transparency over its tax policy.

Shell is listed on the Dutch exchange and its parent company is headquartered in The Hague, but effectively does not pay taxes in the Netherlands despite making a profit of €1.3bn (£1.15bn) in 2017 due to the way it has structured its tax framework, particularly to eliminate charges for withholding tax on dividends.

In the Netherlands, parent companies do not need to pay tax on profits on which foreign subsidiaries have already been taxed. The European Commission wants to limit this so-called ‘participation exemption’. Companies would then have to work within tighter rules than in the rest of the world, according to the Dutch finance committee, adding that ‘the cabinet wants European rules to align with global agreements as far as possible’. There is also a low tax charge for intellectual property (IP) registered in the Netherlands, a method used by multinationals to crosscharge IP usage across the global operation, thereby reducing tax liability. This was highlighted at the Starbucks hearing before the Public Accounts Committee in 2017.

In a statement, Shell said it paid $10bn (£7.9bn) in corporate tax and $6bn in royalties in 2018, and has an effective tax rate of 33% worldwide.

Healthcare company Philips, also called up to explain its tax position, told the hearing that it does not pay any corporate tax in the Netherlands, but is aiming to start paying Dutch tax in 2021 due to a structural change to its jurisdictional tax planning.

In the UK, the largest multinationals have been required to publish tax strategy reports disclosing their UK tax policy since September 2016, legislation introduced in Finance Act 2016. The report has to disclose the approach of the UK group to risk management and governance in relation to UK taxation, and the attitude of the group to tax planning in a UK context. It does not have global reach.

This covers UK groups and subgroups (including UK permanent establishments (PEs) of companies within the group) where the UK group/subgroup’s aggregated turnover (including that of UK PEs) is more than £200m, or the total of its balance sheet assets (including that of UK PEs) is in aggregate more than £2bn in the previous financial year.

Sara White

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