Taxation of our businesses

Our tax data reflect the varied nature of our activities. We have a large portfolio of assets and businesses in different countries and at different stages of the business cycle, from start-up to decommissioning. The business model, the stage in the investment cycle and business performance drive much of our taxes paid.

Economic activity is one of the key drivers of demand for oil, natural gas and oil products. Widespread economic and geopolitical uncertainty meant the global business environment remained challenging in 2019. According to the IMF’s World Economic Outlook, global economic growth for 2019 is estimated to have fallen to 2.9% from 3.6% in 2018.

Our business profits are closely linked to oil and gas prices and so are our taxes. When oil prices are higher, we see a greater proportion of profits being taxed at higher upstream tax rates. When oil prices are lower, a lower overall might be expected.

Average oil and gas industry prices in 2019 were lower than in 2018. This would have led to an expectation of a reduced ETR. However, in 2019 we had more expenses that are not deductible for tax purposes and one-off accounting adjustments resulting in a higher ETR of 35.5% in 2019 compared with 32.9% in 2018.

Further details on our ETR can be found in the Annual Report and Accounts 2019.

Our 2019 Annual Report and Accounts presents our business through the segments: Integrated Gas, Upstream, Downstream, and Corporate. Corporate covers the non-operating activities and central functions that support our businesses. The majority of the costs related to our headquarters and central functions are recovered from the business segments. Those costs that are not recovered are retained in Corporate. See Supporting services for more detail. Relevant Projects & Technology activities are included in the Upstream, Integrated Gas and Downstream segments.

The Upstream and Integrated Gas businesses generate a significant part of our taxation charge. Governments often have specific oil and gas fiscal regimes with tax rates that are higher than those for other industries. Upstream and Integrated Gas projects have phases and our total tax fluctuates depending on the phase of a project.

Taxes through the business cycle

Taxes through the business cycle:

Our contributions to a country are not always included in the corporate income taxes reported. We may have agreed with governments to make payments as a share of the oil and gas we produce, through or . Details of these payments are included in our Payments to Governments Report.

Downstream includes the business activities for manufacturing and energy production, transport and trading and sales and marketing. These activities are usually taxed at a country's standard rate of corporate income tax. Downstream tax contributions are mainly driven by our physical presence in countries where we have refineries, chemical plants and retail sites.

In addition to corporate income taxes, we pay import and export duties and other tariffs on our transport and trading activities. Our Retail business handles large volumes of sales transactions, which incur and fuel duties. These are collected and paid to the authorities.

Manufacturing and energy production require a significant number of employees working in plants and refineries, raising revenues for governments through .

Companies in Projects & Technology pay taxes in the countries where they reside. The service fees they charge are typically tax deductible for the recipient as business costs, following local tax principles and rules.

Two female Shell employees looking at a tablet display in a plant (photo)

Manufacturing and energy production require a significant number of employees working in plants and refineries, resulting in tax contributions through employment taxes.

Effective tax rate (ETR)
This is the ratio of tax compared with the profits in the financial statements. See How businesses are taxed for an illustration.
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Royalties are generally payment due for the use of an asset. Mineral royalties are payments to governments or other owners for the rights to extract oil and gas resources, typically at a set percentage of revenue less any deductions that may be taken. See also Trademark royalties.
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Indirect taxes
Taxes raised on goods and services rather than income and profits. Examples include VAT, sales tax, excise duties, stamp duty, services tax, registration duty and transaction tax.
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Consumption taxes
A tax due on the purchase of goods and services. Typically, this is a percentage of the sales price of the item or service. It is an indirect tax as it is levied and administered by the retailers or service providers but it is borne or paid by the individual purchasing the item. The companies that charge the tax have to administer the collection and payment on behalf of the government.
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Employment taxes
These are wage taxes and may include social security contributions.
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