Advance tax agreements
These are formal or informal rulings and clearances which tax authorities provide when there are complex transactions, unclear regulations or substantial values involved. These agreements reduce uncertainty and should always be in line with the letter and spirit of the law.
Appropriate substance means that there should be an adequate number of employees, with suitable qualifications to perform their jobs, and appropriate physical presence in the relevant jurisdiction. Many businesses will for good reason outsource some of their activities to third-party service providers but the core income-generating activities would not.
Arm’s length principle
This valuation principle is commonly applied to commercial and financial transactions between related companies. It says that transactions should be valued as if they had been carried out between unrelated parties, each acting in their own best interests.
These are transactions or activities which are undertaken without a core commercial purpose.
A country’s tax base, which is the amount the government can raise in taxes, may be eroded by some companies engaging in profit shifting. As a result of perceived abuses by some, the OECD launched the BEPS project to protect members against base erosion.
The OECD project to tackle artificial base erosion and profit shifting (BEPS). The guidance and legislation introduced to support the BEPS project means that companies are taxed “where their economic activities take place and value is created”.
BOE stands for barrel of oil equivalent which is used by energy companies as a way of combining oil and gas and refined products into a single measure.
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.
A branch is an office or business presence in a location other than where the corporate entity is established.
These are long-term, capital-intensive investment projects with a purpose to build upon, add to, or improve a capital asset. Capital projects are defined by their relatively large scale and cost, and require considerable planning and resources.
Commercial reasons or commercial considerations
Commercial reasons or commercial considerations refer to activities undertaken with a view to making a profit. An entity’s presence in a country should be the result of commercial activities and it should have the appropriate substance to perform those activities. The management and directorships of the operating company should be in the country of operation.
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.
This can vary between countries but at its essence means that taxpayers and tax authorities have open and proactive discussions on matters that may impact a taxpayer’s tax return and seek to resolve any areas of interpretation.
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.
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.
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.
A tax imposed on goods as they either leave or enter a country. Customs duties are also in addition to other indirect taxes such as excise, VAT or GST. It is therefore possible to have goods which are subject to excise duty, customs duty and VAT.
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.
This arises where the same income is taxed twice by two or more different tax jurisdictions.
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.
EITI stands for the Extractive Industries Transparency Initiative. This is a global standard for the good governance of resources like oil and gas. EITI requires disclosure of information such as publication of data showing how much money governments receive from resource extraction.
These are wage taxes and may include social security contributions.
This is a tax on manufacturers and is due at the point of production rather than sale. Companies which manufacture products that are subject to excise duties are responsible for reporting and paying these taxes. Excise taxes are in addition to other forms of indirect tax, such as customs duties, VAT or GST, and typically form part of the cost of the product.
Fees and other sums paid as consideration for acquiring a licence for gaining access to an area where extractive activities are performed. Administrative government fees that are not specifically related to the extractive sector, or to access to extractive resources, are excluded. Also excluded are payments made in return for services provided by a government.
Final investment decision
A government’s approach to taxes and spending. The policy will vary depending on different electoral parties, governing systems and between countries.
A goods and services tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services.
The principal purpose of this type of company is to hold and manage investments in other companies or joint ventures. Holding companies differ from operating companies, for example they will need less staff but they still have commercial value as a way to manage and administer all the different investments within a group.
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.
Intangible property that is the result of creativity. This can include patents, trademarks, and copyrights.
International compliance assurance programme
The International Compliance Assurance Programme (ICAP) is a voluntary programme for a multilateral co-operative risk assessment and assurance process. It is designed to be an efficient, effective and coordinated approach to provide multinational groups willing to engage actively, openly and in a fully transparent manner with increased tax certainty with respect to certain of their activities and transactions.
Low-tax or zero-tax rate jurisdiction
See Tax Haven.
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.
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.
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.
This describes the activities that take place in a country that requires the filing of a tax return and possibly the payment of taxes in that country. This is another name for a taxable presence.
Corporate income tax payment regimes differ. Many tax regimes require payments to be made in instalments. These may be due before the final tax liability is known or agreed.
This is the host government’s share of production. It includes the government’s share as a sovereign entity or through its participation as an equity or interest holder in projects within its home country.
Production-sharing contracts or concessions
A production-sharing contract (PSC) is a contractual arrangement between the holders of a resource, typically a country’s government, and a resource extraction company concerning how much oil or gas each party would receive. The company bears the mineral and financial risk of the initiative. It explores, develops and, if successful, manages production. Costs are recovered through the sales of oil or gas and what is left over is split depending on the terms of the contract.
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.
This is the term used to describe artificial arrangements whereby companies move profits from one jurisdiction to another jurisdiction in order to minimise tax payments.
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.
See Tax authority.
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.
See Consumption taxes.
Statutory tax rate
This is the tax rate imposed by law in a country.
A tangible asset is an asset that has a physical form, for example plant and equipment.
Tax that represents a cost to Shell and impacts upon its financial results. This includes Tax Paid (see Introduction to country-by-country reporting) as well as non-corporate taxes, such as employer social security contributions.
The aggregate of current tax and deferred tax included in the determination of profit or loss for the period in our Annual Report and Accounts.
Tax that Shell does not directly incur but instead collects from its customers and employees on behalf of governments. This includes indirect taxes such as VAT and GST, as well as employee income tax and social security contributions.
There are different definitions of the term tax haven but typically this is considered to mean one country offering significantly lower tax rates or other tax features compared with the average rates or features offered by other countries.
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.
The B team
The B Team is a not-for-profit initiative aimed at ensuring that business becomes a driving force for social, environmental and economic benefit. Shell is a founding member of The B Team Responsible Tax Working Group but is not a member of the overall B Team initiative. Through The B Team, Shell and other companies have been able to give a voice to the companies’ views in the debate on fair taxation. The B Team Responsible Tax Principles, which Shell has helped to develop, reflect the views of leading companies and civil-society organisations on a responsible approach to tax.
Payments for the right to use trademarks. Trademarks are a legally registered name, word, symbol or design which identifies the goods or services of a particular business or company.
A tax on imports or exports between sovereign states. See Customs duty.
This refers to the setting of the price for goods and services sold between related entities within a group. Transfer pricing should be based on the arm’s length principle. This means that profits are allocated to the countries where the relevant economic activity takes place and cannot be artificially taken somewhere else.
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.
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.