Shell invests significant time and resources in building processes to support accurate and timely compliance with tax legislation. We are committed to complying with the tax legislation of the many countries where we operate and seek to establish constructive relationships with tax authorities.
In 2020, Shell filed around 5,900 direct tax returns and around 36,700 indirect tax returns. We filed these on time in almost 100% of cases. We also processed more than 24,200 separate tax payments. A small number of returns may be submitted late. When this is the case, we carefully monitor the reasons, learn from them and pay any applicable late-filing fees. If we identify errors in our filings, we seek to address these with the relevant tax authorities.
Around 630 trained staff prepare, file and process our tax returns and payments. They are based in our business service centres in Poland, India, Malaysia and the Philippines. We also rely on a global team of around 300 tax experts who advise the business according to the Shell Responsible Tax Principles and our tax control framework. Where appropriate, we run training sessions for non-tax staff who need to be aware of tax compliance requirements.
Assurance and controls
Our Tax function supports the business in delivering on priorities and understanding tax risks. We seek to submit accurate tax accounting data and tax returns, in compliance with the letter and spirit of the applicable laws, wherever we have a taxable presence.
Our tax control framework, policies and guidelines set out the standards, risk management, controls and assurance that establish boundaries for our tax activities. The framework helps us to identify tax risks and sets out practical guidance for our staff, including the procedures for considering tax risks.
All ventures that we operate must conduct their activities in line with our business principles. The tax control framework is part of the Shell Control Framework, which applies to every Shell entity, including its employees and contract staff, and to Shell-operated ventures.
We monitor the adequacy of our system of risk management and internal control throughout the year. External auditors regularly review our tax controls as part of the audit of our financial results.
Tax authorities in several countries, including the UK and the Netherlands, have granted Shell entities Authorised Economic Operator (AEO) status for customs duties. AEO is an internationally recognised status which indicates that Shell operates secure supply chains and has a strong compliance framework when it comes to customs processes and controls. One of the benefits of having AEO status is reduced reliance on physical and document-based customs controls.
We do not condone, encourage or support tax evasion. Compliance is embedded in the Shell General Business Principles and the Code of Conduct. Employees, contract staff and third parties with whom Shell has a business relationship may raise ethical and compliance concerns, anonymously if preferred, through the Shell Global Helpline.
In 2020, Shell’s Audit Committee discussed with management new and potential tax legislation developments in various countries and how their potential impact on Shell is being managed. They also discussed updating the approach to tax to make it easier to read, while not changing how we approach tax matters in practice, as well as our proposed responses to the continued demand for greater transparency of tax information.
Dealing with uncertainty
Our aim is to take sustainable tax positions in support of our business investments, which may be of a long-term nature. When we apply tax legislation, we do so with the reasonable expectation that our interpretation will be upheld in court. Sometimes, the law or how to apply it is unclear to taxpayers. In these situations, we may seek to find clarity by talking to the tax authority as part of a co-operative compliance arrangement.
A co-operative compliance arrangement means we engage with tax authorities, providing them with real-time information before filing a tax return. We have co-operative compliance arrangements with the tax authorities in Austria, Italy, the Netherlands, Singapore and the UK. We are exploring possibilities for establishing more co-operative compliance relationships in other countries. In 2020, we continued our discussions with senior tax officials in Kazakhstan about a pilot co-operative compliance scheme.
When co-operative compliance arrangements are not available, we may seek to engage with a tax authority to share our understanding of the application of the law.
In the case of transfer pricing, where there is uncertainty about the appropriate price for a particular intragroup transaction, we may apply for an advance pricing agreement (APA). Under an APA, the taxpayer and tax authority agree the transfer price that will apply before a tax return is submitted.
Sometimes, agreement on tax issues cannot be reached quickly with authorities and we seek to resolve any outstanding issues so that the tax return can be agreed.
The countries in which we operate have differing degrees of political, legal and fiscal stability. This exposes us to a wide range of political developments that could result in changes to contractual terms, laws and regulations. We continually monitor geopolitical developments and societal issues relevant to our interests.
Tax authorities in different countries can hold conflicting views about how the taxation of multinational enterprises should be interpreted or applied. When this lack of clarity occurs within a tax treaty or agreement between countries, we may use a mutual agreement procedure where the authorities aim to resolve the issue between themselves.
If we are still unable to reach an agreement with an authority, we may have to test the legal principle of the tax law concerned through the judicial system. However, we take this approach only when other options have not provided a resolution. For example, in 2016, we challenged a value-added levy on oil extraction imposed by Brazil’s State of Rio de Janeiro because we believed the obligations arising from the law were not legally sustainable. In March 2021, the Brazilian Supreme Court ruled that the levy was unconstitutional.
Compliance with transparency initiatives
We constantly review our tax disclosures and engage externally to improve disclosure of data that are meaningful to our stakeholders.
The Global Reporting Initiative (GRI) has developed Sustainability Reporting Guidelines that strive to increase the transparency and accountability of companies’ economic, environmental, and social performance. The GRI 207 standard, which came into effect on January 1, 2021, supports comprehensive disclosure of country-by-country corporate income tax payments.
GRI 207 provides best practice reporting guidance and contains many measures that Shell had already adopted. Some elements, such as the country-by-country reporting requirement, concerned information that we published according to OECD guidelines. In our Sustainability Report, we report performance against the GRI standards, including on tax.
Shell seeks to meet the mandatory elements of the GRI 207 requirements, except for aggregated country data for entities that are consolidated. We follow OECD rules for these entities.
In January 2021, at the World Economic Forum, Shell joined a global coalition of businesses to report on a range of environmental, social and governance (ESG) performance factors. The core Stakeholder Capitalism Metrics are 21 disclosures which are mapped to the UN Sustainable Development Goals. One of the metrics is for companies to disclose their total tax borne as a core metric.
Innovation for the future
We continue to improve the quality of our data through the use of technology, including analytical tools that aid testing, assessment and interpretation of data.
Tax authorities are increasingly implementing or expanding digital tax platforms, enabling businesses to file real-time tax returns, and are requesting access to our accounting systems. More and more countries are introducing digital VAT regimes that allow for the direct transfer of data from company reporting tools to the tax authorities. In recent years, these regimes were introduced in Spain, Hungary, Poland, Norway, France, Portugal and Luxembourg.
We are improving our data management to meet compliance and transparency requirements more efficiently. In 2020, we continued to enhance our “one click tax returns” tool in the USA, which analyses transactions subject to excise tax on a real-time basis for accuracy and completeness. Reviewing transactions as they occur supports Shell’s ability to file real-time tax returns.
We are also developing and deploying other software for our reporting of indirect taxes which standardises, reconciles and classifies the data to aid preparation of the tax return with the appropriate tax treatment. In 2020, we implemented the tool in the Netherlands, the UK and Germany for VAT or excise duties with further deployment planned in 2021.
In addition, we are looking at how Shell’s future accounting systems will deliver the data we need to meet the requirements of tax authorities in real time. We have started implementing a new central finance software platform and a new accounting system. These will help us develop a simplified data model across Shell.