Shell Paid Zero UK Corporate Income Tax in 2018
Sun, April 18, 2021

Shell Paid Zero UK Corporate Income Tax in 2018

Oil industry company Royal Dutch Shell details in its Tax Contribution Report that it did not pay a corporate income tax in the UK in 2018 although it had generated pre-tax profits of nearly $731 million on its total revenues of $108 billion in the UK / Photo by: Dickbauch via Wikimedia Commons

 

Oil industry company Royal Dutch Shell details in its Tax Contribution Report that it did not pay a corporate income tax in the UK in 2018 although it had generated pre-tax profits of nearly $731 million on its total revenues of $108 billion in the UK, reports global business publication Financial Times.

Shells Tax Contribution Report

The British-Dutch oil and gas company, which is headquartered in the Netherlands and incorporated in the United Kingdom, became the first large multinational company to voluntarily disclose how much tax they are paying per country by sharing to the public its Tax Contribution Report. The transparency report likewise details how their tax relates to their profits, employees, and turnover, among other things, per country in question.

“Businesses and society benefit when there is transparency and trust,” Shell’s Chief Financial Officer Jessica Uhl wrote. She added that their Tax Contribution Report is a significant step towards greater transparency around the company’s approach to paying taxes to governments of different countries.  Tax director Alan McLean said that although their report may “not satisfy everyone,” they wanted the public to understand them better based on facts and that they are also proud of how their contribution can make a development in the countries where they operate.

Why Shell Paid No Corporate Tax in the UK

Despite the accruing profits worth $731 million in the UK and payment of $10.1 billion in corporate tax worldwide in 2018, the report confirms that the company received tax refunds on the decommissioning of the North Sea oil platforms. In short, the zero corporate tax is a form of government relief for the costs of dismantling the oil and gas infrastructure in the North Sea region. 

Despite the accruing profits worth $731 million in the UK and payment of $10.1 billion in corporate tax worldwide in 2018, the report confirms that the company received tax refunds on the decommissioning of the North Sea oil platforms / Photo by: HM Revenue & Customs via Wikimedia Commons

 

Oil Decommissioning in the North Sea 

Brent field is an oil and gas field located in the East Shetland Basin of the North Sea and is operated by Shell UK. Although it was once one of the most productive parts of the country’s offshore assets, it has already reached a stage where production will no longer be economically viable for the UK. Until today, the decommissioning of the Brent field continues. 

Shell said that Brent is only one of the hundreds of other installations that will be decommissioned in the United Kingdom sector for the next 30 to 40 years. Industry experts believe that around 600 installations will be decommissioned in the North Sea and, so far, around 10% of the North Sea region already entered the decommissioning phase.

Brent field is an oil and gas field located in the East Shetland Basin of the North Sea and is operated by Shell UK / Photo by: Erik Christensen via Wikimedia Commons

 

Decommissioning Relief Deeds

The Decommissioning relief deeds (DRD) is a contract between the government and firms operating in the UK and its continental shelf to provide tax relief in respect of the decommissioning expenditure. “Decommissioning is a cost incurred as part of the lifecycle of the field, and is therefore tax-deductible,” Shell stated on its site

Last September, however, the British government faced growing outrage from five EU member states and the European Commission for its plan to leave some decommissioned oil rigs in the North Sea instead of removing them. Each piece of infrastructure in the North Sea can be as tall as the Eiffel Tower, according to British daily newspaper The Guardian, and disassembling them can be a costly undertaking. 

UK’s plan raised concerns in other EU countries, particularly Germany, reminding the environment secretary of the UK that rigs contain storage cells that can be considered as hazardous waste based on the EU law. Germany's complaint is now backed by Luxembourg, the Netherlands, Belgium, and Sweden.

The tax arrangements of Shell have also been under scrutiny in the Netherlands after it relocated its headquarters to The Hague. Critics have accused the company of dodging taxes through offshore trusts.

The Statutory Corporate Income Tax Rate

Scientific online publication Our World in Data shared the statutory corporate income tax rate of the United Kingdom in the following years: 2000-2007 (30%), 2008-2010 (28%), 2011 (26%), 2012 (24%), 2013 (23%), 2014 (21%), 2015 (20%), 2016 (20%), and 2017-2018 (19%). The standard rate provided herein was not targeted at certain income types or industries. 

The Tax Foundation, a US independent tax policy nonprofit, also shares that corporate tax rates around the world averaged at 40.38% since 1980 but continued to decline in every region since that year. The average corporate income tax rate worldwide is now 24.18%. When weighted by the country’s gross domestic product, it would be 26.30%. Countries with the highest statutory corporate income tax rates in the world in 2019 include United Arab Emirates (55%), Comoros (50%), Puerto Rico (37.5%), Suriname (36%), Chad (35%), Democratic Republic of Congo (35%), Equatorial Guinea (35%), Guinea (35%), Kiribati (35%), Malta (35%), and Saint Martin (French part) (35%). 

On the other hand, countries with the lowest statutory corporate income tax rates in 2019 include Barbados (5.5%), Uzbekistan (7.5%), Turkmenistan (8%), Hungary (9%), Montenegro (9%),  and Andorra (10%).

In the face of criticism, Shell’s publication of the Tax Contribution Report shows its commitment to compliance with the tax regulations set by governments of different countries. Not only can the tax authorities take notice of it, but it may serve as a model for other firms to also build public trust by clearly communicating its tax contributions.