Low-tax jurisdictions, so-called tax havens, are typically considered to mean countries with significantly lower effective tax rates compared with the average rates offered by other countries. In some cases, the corporate income tax rate is zero. Governments have a sovereign right to determine tax matters in their countries and sometimes set low corporate income tax rates to attract investment from outside their borders. In recent years, international organisations, such as the OECD, and many countries have discussed whether a country’s low-tax policy may have a negative impact on other countries. They have also debated various ways of addressing this.
Most recently and steered by the G20, the OECD has been developing proposals for a coordinated two-pillar response. Shell supports such an internationally coordinated approach which avoids problems caused by unilateral actions that can lead to the fragmentation of tax rules. Pillar One aims to align taxes more closely with local market engagement so that a larger portion of profits is taxed in the jurisdiction where sales are made, even if a multinational does not have a physical presence in the jurisdiction of sale. Pillar Two introduces new rules to ensure a minimum level of effective taxation for all profits made by multinationals.
Shell has a taxable presence in 99 countries and locations, with different tax regimes and varying corporate income tax rates. When we are present in low-tax jurisdictions, we are there for commercial reasons, such as crude oil trading and retail sites. These reasons can also include the presence of companies that hold investments or perform other services we need such as pensions, finance and insurance. In line with the Shell Responsible Tax Principles, we do not use these locations to avoid tax on activities that take place elsewhere.
When we invest in a country, we consider factors which include access to local or regional markets, the stability of the political, regulatory and social environment, local infrastructure and workforce. We also consider the overall costs of operation and the attractiveness and stability of a country’s fiscal regime. However, the investment must first meet our strategic, business or operational aims.
Reviewing entities in low-tax jurisdictions
We conducted a review in 2019 and 2020 of Shell-controlled and Shell-operated entities incorporated or present in low-tax jurisdictions against our Shell Responsible Tax Principles. The review considered the purpose of the entity and whether it should continue to be in that jurisdiction.
We identified entities that are no longer active and can be liquidated as a matter of good corporate governance. We also identified entities that can be restructured and held or operated from another jurisdiction. In other cases, our review concluded that the entities could remain in low- or zero-tax jurisdictions because there was a commercial reason for being there.
As part of the review, in 2020 we liquidated four legal entities in Bermuda and relocated another two Bermuda entities to the Netherlands. We also reviewed recently acquired entities, such as holding companies in Saint Lucia for upstream and LNG operations in the Caribbean. Following this review, we consolidated the operations and simplified the holding structures. As a result, we identified four Saint Lucian entities for liquidation and completed these liquidations in 2021.
In 2020, we also piloted a new assurance control process to transform this review into an annual exercise undertaken by the country tax manager in each low-tax jurisdiction. This will now form part of the tax control framework from 2021 onwards and will provide ongoing assurance that Group structures in low-tax jurisdictions continue to be there for commercial reasons. The new assurance control process will also identify potential liquidations and restructuring.
For example, at the time of our 2020 review, Oman was on the European Union (EU) list of non-co-operative jurisdictions, which is sometimes referred to as the EU tax haven blacklist. Our review concluded that the Shell entities in that country have substantial operational activities, including exploration, production, trading and retail. We therefore considered our presence in Oman to be for commercial reasons and appropriate.
In this report, we share more detail about low-tax jurisdictions in the country pages. Further information on entities and ownership is available in the Annual Report and Accounts 2020.