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How businesses are taxed

Governments use tax to raise revenues. Revenue agencies audit and collect these taxes. Most businesses are subject to tax, regardless of whether they are multinational corporations or home-office enterprises. Businesses pay direct taxes to the government and they collect indirect taxes on behalf of governments as a supplier of goods or services.

This report details our country-by-country report data for 2020, in line with the Organisation for Economic Co-operation and Development (OECD) standards. It includes the available data for countries and locations in which we have a taxable presence. The data include corporate income tax paid, profit before tax and tangible assets.

Tax systems around the world vary and can be complex. However, the tax systems in places where Shell does business have some basic rules in common.

Most businesses pay corporate income tax where profits are made

Corporate income tax is typically due by law in countries where profits are made. This should correspond to where the business activity occurred. The tax due is determined by the tax system of the country or location where that activity took place. Governments design and apply tax rules to the profits generated in their countries and assess what is owed by businesses. Corporate income tax is payable on profits, not revenues. See the table “Simplified example of application of local tax law” for how tax rules are applied to calculate the tax due.

Sometimes a multinational enterprise like Shell faces double taxation. This is when two countries seek to tax the same business income, resulting in a company being taxed twice. We believe that profit should only be taxed once, in line with the positions of the United Nations and the OECD.

In 2020, Shell reported a total loss before tax of $27 billion. Shell companies still paid $3.4 billion [A] in corporate income tax as some of our companies reported a profit in 2020 and/or settled taxes from the previous year. Shell paid a further $3.5 billion in royalties to governments. We also reported a corporate income tax credit of $5.4 billion for 2020. 

In most countries and locations, the corporate income tax we pay differs from the accounting tax credit or charge. This is because tax paid can include payments relating to previous years, the current year and future years.

Our effective tax rate (ETR) is calculated by dividing the tax credit of $5.4 billion by the total loss before taxation of $27 billion, resulting in an ETR of 20.1% for 2020. For comparison, the average corporate income tax rate levied by the 37 countries that were members of the OECD in 2020 was 23.1% [B].

Our ETR is a blend of the different statutory tax rates applied to our various businesses and the different tax laws with which we have sought to comply.

In the past three years, our ETR has been higher than the average corporate income tax rate in OECD countries, partly because many governments apply a higher corporate income tax rate to profits made by oil and gas production activities. In some cases, this tax rate can be more than 80%.

Our lower ETR for 2020 was the result of asset impairments of $28 billion recorded that year, resulting in an overall tax credit of $5.4 billion.

[A] This figure comprises $3.3 billion taxes paid in 2020, disclosed as part of cash flow from operations, and $132 million of accrued withholding taxes on dividend, interest and royalty payments to Shell entities. It does not include withholding taxes collected by Shell on dividends paid to shareholders. For more details, see the chapter on Our tax data.
[B] Source: OECD Tax Database (2020), Table II.1. Statutory corporate income tax rate.

Simplified example of application of local tax law




Cost of operation


Cost of financing the business


Cost arising from equipment


Research and development


Profit before tax per the accounts



Adjustment to accounting profit based on the application of local tax laws:


Additional research & development tax relief


Additional tax relief for investment in new plant and machinery


Denial of deduction for some finance costs (for example perhaps relief is only available up to a certain percentage per year)




Profits subject to tax


Tax due at statutory tax rate of 25%


Effective tax rate (375,000 / 1,575,000)


Tax generates revenue for governments

Tax revenues enable governments to pay for public services, such as education, health care and transport. Governments set their fiscal policies and the rules for individual and business taxes. Tax treatments — such as tax rates, reliefs, exemptions and allowances or disallowances — are typically approved by national parliaments. Companies must comply with relevant tax laws. Audits and controls by tax authorities help to check whether companies are compliant.

Governments can use targeted tax incentives for specific policy objectives, such as protecting the environment, reducing carbon emissions or encouraging advances in areas like research and development. Governments often design incentives to attract domestic and international investment, which can boost economies, create jobs and develop communities. When available and appropriate, we make use of tax incentives and exemptions where we have a business activity that qualifies.

Some governments may choose to lower specific taxes, like corporate income tax. These are deliberate policy decisions and not unintended tax loopholes. Such incentives are designed by governments to attract investment in areas where development may benefit their countries. When governments offer such incentives, they may expect to raise revenues through other types of taxes, such as employment taxes or export duties.

Companies pay and collect a range of taxes

Companies pay and collect a range of taxes. These include:

  • Corporate income tax: direct tax on profits, after operating costs have been deducted from revenues.
  • Value-added tax (VAT): indirect tax due on the purchase of goods and services, typically as a percentage of the sales price of the item or service. Companies administer VAT collection and payment on behalf of governments.
  • Employment tax: companies routinely collect income taxes on employees’ salaries and pay these taxes to the government.
  • Excise duty: an indirect tax on manufacturers due at the point of production rather than sale, which generally forms part of the cost of the product.
  • Customs duty: an indirect tax imposed on goods as they either enter or leave a country.

According to 2018 figures from the OECD [C], a government’s largest source of revenue typically arises from employment taxes, which include personal income tax, payroll taxes and social security contributions. Most employment taxes are paid by employees but some are paid by companies. Governments also generate revenue through indirect taxes on products and services, often as consumption taxes paid by consumers but in some cases also by businesses. These include non-recoverable VAT, customs, excise and other duties.

When a business collects indirect taxes on behalf of a government, it carries the cost of gathering the financial data, preparing reports and executing payments. This process helps governments collect taxes more efficiently because it is easier to collect VAT from businesses than from individual consumers.

OECD data on the average split of member countries’ tax revenues show that corporate income tax raises around 10% of total tax revenues.

[C] Source: OECD (2018), Revenue Statistics 2020, OECD Publishing, Paris.

Governments collect different types of taxes


A Taxes on personal income, profits and gainsB Taxes on corporate income and gainsC Social security contributionsD Taxes on propertyE Value added taxes (VAT)/ goods and services taxes (GST)F Taxes on goods and services (excluding VAT/GST) G Other 26% 2% 24% 10% 6% 20% 12% A C D E F G B A Taxes on personal income, profits and gainsB Taxes on corporate income and gainsC Social security contributionsD Taxes on propertyE Value added taxes (VAT)/ goods and services taxes (GST)F Taxes on goods and services (excluding VAT/GST)G Other 26% 2% 24% 10% 6% 20% 12% A C D E F G B
Source: OECD (2018), Revenue Statistics 2020, OECD Publishing, Paris.

Companies operating in the oil and gas industry also contribute to public finances by paying royalties, bonuses, fees, and a host government’s production entitlements. For example, in 2020 we paid around $7 billion in production entitlements. This is more than we paid in corporate income tax.

Our Payments to Governments Report shows how we directly contributed to public finances in 2020 as a result of our exploration and production activities.

This report focuses on corporate income tax as this tax has attracted interest from investors, non-governmental organisations and wider society.

More information on what we do

More information on what we do

Inputs [A]



Total assets ($ million) [B]


Cash capital expenditure ($ million)


Operating expenses ($ million)


Tax returns filed

Our people


Employees [B]


New hires


Total employee costs ($ million) [C]





spent on research and development ($ million)


spent on social investment ($ million)



Total revenue and other income ($ million)


Loss before tax ($ million)


Corporate income tax paid ($ million)


Shareholder distributions ($ million)

Our people


Women in senior leadership positions [B]


Average employee engagement score (points)


Female employees



of goods and services purchased from suppliers based in the same country of operations


research and development projects started with universities


social investment spend in low-income countries ($ million) [D]

Outcome and impact [A]

  • [A] In 2020 unless stated otherwise.
  • [B] At December 31, 2020.
  • [C] Excludes employees seconded to joint ventures and associates.
  • [D] Countries where gross domestic product is less than $15,000 a year per person according to the UN Development Programme’s Human Development Index 2019.
Payments for bonuses usually paid upon signing an agreement or a contract, or when a commercial discovery is declared, or production has commenced or production has reached a milestone.
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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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Corporate income tax
This is a direct tax imposed on companies’ profits. It is sometimes levied at a national level but can also be levied on a state or local basis.
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Throughout this report, “country” is used as the primary descriptor for a geographical area because that is the word used by the OECD/G20 Base Erosion and Profit Shifting (BEPS) project in their proposal for country-by-country reporting (CbCR). This is one of the four minimum reporting standards to which over 100 countries have committed, covering the tax residence jurisdictions of nearly all large multinational enterprises (MNEs). In this report “country” may also refer to locations, jurisdictions or territories which have their own tax regimes or discrete rules.
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Country-by-country reporting
Country-by-country reporting (CbCR) was introduced for all large multinational enterprises (MNEs) as part of the OECD BEPS project. The report should disclose aggregate data on income, profit, taxes paid and economic activity among tax jurisdictions in which the MNE operates. The report is filed with the main tax authority (typically the tax authority in the country in which the MNE has its head office) which can share it with tax authorities in other countries.
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After payment of costs and taxes, a company may choose to make a dividend payment to its shareholders as a return on their investment in the company. After payments of dividends, any remaining surplus is termed ‘retained earnings’ and is available for reinvestment into the business.
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Double taxation
This arises where the same income is taxed twice by two or more different tax jurisdictions.
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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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Employment taxes
These are wage taxes and may include social security contributions.
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Multinational enterprise or corporation
A multinational enterprise (MNE) or multinational corporation is a company or group of companies with business establishments in two or more countries.
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Non-recoverable VAT
A business can typically reclaim the VAT charged on its purchases against the VAT it charges others on sales that it makes. The government therefore should receive VAT from the end consumer and not at each stage of the supply chain. However, a business may have non-recoverable VAT costs, where offset is not available or permitted.
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OECD stands for the Organisation for Economic Co-operation and Development which is an intergovernmental economic organisation with 38 member countries, founded in 1961 to stimulate economic progress and world trade.
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Profit before tax
These are profits after the deduction of operating costs but before the deduction of tax. This number forms the basis on which we apply local tax laws and then pay corporate income tax.
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This represents the total income earned by a company. It includes income from customers or other group companies and income received as royalties and interest income.
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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 Trademark royalties.
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Statutory tax rate
This is the tax rate imposed by law in a country.
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Tangible assets
A tangible asset is an asset that has a physical form, for example plant and equipment.
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Tax incentives
There is no common definition of a tax incentive. Shell defines tax incentives as fiscal measures designed by governments to stimulate investment and encourage growth, or a change of behaviour, by providing more favourable tax treatment to some activities or sectors. Incentives can include accelerated tax relief for capital expenditure on infrastructure, exemptions from certain taxes where government economic targets (for example employment targets) are met, or a favourable tax treatment of costs related to research and development activities for certain technologies.
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Taxable presence
See Permanent establishment.
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Value-added tax (VAT) is a specific type of turnover tax levied at each stage in the production and distribution process. Although VAT is ultimately levied on the consumer when they purchase goods or services, liability for VAT is on the supplier of goods or services. VAT normally utilises a system of tax credits to place the ultimate and real burden of the tax on the final consumer and to relieve the intermediaries of any final tax cost. See Non-recoverable VAT.
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Withholding taxes
A withholding tax is an income tax to be paid to the government by the payer of the income rather than by the recipient of the income. The tax is thus withheld or deducted from the income due to the recipient. Withholding taxes usually apply to royalties, interest or dividends.
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