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Misunderstanding can colour the ‘highly charged’ tax debate, says Shell CFO

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Businesses and governments are in ‘a volatile era’ in which stable and predictable tax frameworks are ‘critical’ in maintaining the right conditions for investment, said Simon Henry, Chief Financial Officer at Royal Dutch Shell.

Writing in the Daily Telegraph on 20 January, Henry said there was a sense that capitalism itself had reached a turning point and that ‘something is broken in the contract between government, society and business’.

‘There's a highly charged debate about whether international companies like Shell avoid paying their fair share of tax,’ he wrote. ‘While the business sector must strive to preserve and strengthen public confidence in its activities, the tax debate can easily be coloured by misunderstanding.’

Determining a ‘fair’ tax rate in the energy industry was ‘a difficult balancing act’ that must take account of the level of investment and risk involved in developing an oil or gas field, he argued.

►‘We don’t expect sweetheart deals’

Earlier this month David Cameron said that it was right for companies to be able plan and to have predictability, but ‘they should be paying a fair tax rate’.

Henry’s article was based on his address to a meeting of the OECD Forum on Tax Administration, held on 18 January. The full speech on ‘Shell and corporate tax’ is available on the company’s website.

It followed the first meeting of the UK government’s Fiscal Forum, established ‘to encourage constructive discussion’ on tax issues with the oil and gas sector.  

As Tax Journal reported on 17 January, Malcolm Webb, Chief Executive of Oil & Gas UK, said measures to stimulate investment were needed as a matter of urgency. ‘We are concerned that over one billion barrels of the UK’s oil and gas resource will remain undeveloped in the current tax regime,’ he said.

Tax havens

‘It's similar with the debate about “tax havens”,’ Henry wrote. ‘It's for sovereign nations to determine their own tax rates in accordance with the revenues they want to generate. Businesses like Shell are perfectly entitled to operate in low-tax jurisdictions for legitimate business purposes.’

The reality was, he suggested, that ‘we have every incentive to pay our fair share of tax and be transparent about it’.

ActionAid said in its recent report Addicted to tax havens: The secret life of the FTSE 100 that oil and mining companies ‘comprise the other big group [after the major banks] of tax haven users’.

The anti-poverty group claimed that Shell had more than 400 companies in tax havens. ‘BP and Shell have almost 1,000 tax haven companies between them, including more than 100 in the Caribbean (hardly a major source of oil),’ it said, while accepting that there was no standard definition of ‘tax haven’ and that its research did not prove avoidance.

While ActionAid appeared to adopt a wide definition of ‘tax haven’ – its list included Ireland, for example – other campaigners focus on ‘secrecy jurisdictions’ and territories that offer ‘escape routes’ to non-residents.

Nicholas Shaxson, author of Treasure Islands: Tax havens and the men who stole the world, defined a tax haven as ‘a place that seeks to attract business by offering politically stable facilities to help people or entities get around the rules, law and regulations of jurisdictions elsewhere’.


‘We don’t expect sweetheart deals’

Simon Henry told the meeting of the OECD’s Forum on Tax Administration:

‘[Predictable tax regimes that incentivise investment] matter more than ever: enormous deficits are prompting some governments to pursue a more short-term and volatile approach to tax.

‘But another critical element of these regimes is how the authorities apply the law, and whether they do so in an efficient, consistent and predictable manner. All of which explains Shell’s commitment to closer co-operation with the authorities.

‘I’m talking about co-operation that follows the FTA’s guidelines: we provide the authorities with timely and comprehensive information on potential tax issues – in return for treatment that is impartial, proportionate, open, responsive and grounded in an understanding of our commercial environment. Thus we are able to settle tax issues upfront, giving us, the business, the certainty we need to begin arranging financing and other corporate and operational structures.

‘From our point of view, such relationships offer the best chance of efficient and predictable tax regimes for our investments. And they help us to comply with the law, and to manage our tax-related risks – which are just one set of the risks that we face in our day-to-day activities.

‘A word on what we don’t expect from closer co-operation: we don’t expect to get everything our own way or to enter into “sweetheart deals”, in other words deals that allow us to avoid complying with the tax laws of the countries in which we operate.

‘For the tax authorities, closer co-operation offers the most efficient route to raising revenues. In particular, it reduces the need for lengthy and expensive audits, so that you are free to focus on your most important risks and the real miscreants engaged in tax evasion and fraud.’

Source: Shell media centre, speeches and articles