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Windfall taxes

Consumers in 2022 are facing significantly higher energy bills and rising inflation. We recognise the impact that volatile prices have across society, in particular on vulnerable consumers and communities. This creates a challenge for governments that are under pressure to mitigate the impact of higher prices.

Many governments are introducing additional taxes on the windfall gains made by the energy industry due to higher revenues. These taxes are commonly referred to as windfall taxes. For example, in May 2022, the UK introduced a 25% Energy Profits Levy to profits from operations in the North Sea and in November announced that this would increase to 35% from January 2023. In September 2022, the EU agreed that the crude petroleum, natural gas, coal and refinery sectors should be subject to a minimum 33% solidarity contribution on their surplus profits arising in 2022 and/or 2023. EU member states are in the process of implementing this in their domestic tax legislation.

While Shell recognises that taxation is the prerogative of government, we believe that collaboration is necessary between industry, governments, consumers, and other stakeholders to consider how best to address the challenge of higher energy prices. Any changes to tax policies need to be designed with clear objectives. We believe that policies must be balanced: addressing the energy crisis and higher prices, while also enabling energy producers and society to develop and scale up cleaner and alternative sources of energy for the future.

Shell is ready to engage with all stakeholders. Our view is that to be effective in achieving their objectives, additional taxes on energy producers would be:

  • Profit-based and not based on energy prices alone, as energy producers’ costs typically also increase when energy prices are high;
  • Predictable through taxing future income because retrospective taxation could bring uncertainty as investors would be unable to effectively factor taxation into their investment decisions;
  • Time-limited and aligned to the period in which the windfall income arises. This would ensure that it is just the windfall income that is subject to tax, and cash flow issues are mitigated by energy producers paying any liabilities using proceeds from their additional revenues;
  • Progressive by only being applicable to income generated by higher energy prices and with potential progressive rates linked to profitability; and
  • Simple to administer and comply with, for example by aligning with existing tax computation processes, with no additional filing obligations.

We also believe that fiscal policy should consider linking these additional taxes to a specific public spending objective, such as investment in low-carbon and more sustainable energy sources. For example, governments could offer companies tax incentives to encourage investment in renewable or new energy technologies. Alternatively, governments may consider linking additional tax receipts to funding such initiatives directly.

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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