Tax incentives
Governments offer tax incentives to support investment, employment or economic development. We seek to ensure that tax incentives are transparent and consistent with statutory and regulatory frameworks before deciding whether to make use of them. We only make use of incentives where they are aligned with our business and operational objectives and where we have a qualifying business activity.
We continually review our approach to tax incentives because we believe that greater transparency promotes a better understanding of what tax incentives are designed to achieve. If there is uncertainty, we will seek to engage with the relevant authorities to agree that the implementation of any incentive meets a government’s intended policy objectives.
Ideally, incentives should be specified by law and generally available to all market participants. However, sometimes governments offer companies incentives that are specific to a contract and not widely available to other market participants. We will use these incentives if they align with our Responsible Tax Principles and if there is any uncertainty we will escalate a decision to the Shell Tax Leadership Team through our Shell Tax Escalation Procedure (STEP).
If we decide to use an incentive that is not specified by law and is not generally available to all market participants, we will encourage the relevant authorities to make details of these incentives publicly known.
As part of our commitment to continually expand tax transparency, this report publishes the main tax incentives applied by Shell in the Netherlands, the UK, India, the USA and Nigeria.
Like other companies, we aim to make data available for governments to assess the economic impact of incentives when requested to do so by the relevant authorities. Data requirements vary by country but could include investments, earnings forecasts or jobs created.
Tax incentives in the energy transition
We are transforming our business to meet our target to become a net-zero emissions energy business by 2050. This includes providing more lower-carbon and renewable energy and working with customers and others as they seek to decarbonise.
Shell advocates government incentives to encourage investment in lower-carbon and renewable energy projects, as well as those that would encourage demand for this energy. Read more about our global climate and energy transition policy positions on shell.com.
For example, we believe that incentives for consumers to purchase electric vehicles are necessary to support the decarbonisation of the transport sector. In aviation, Shell supports the introduction of mandates or incentives that would increase demand for sustainable aviation fuel (SAF). We believe that SAF producers, including international energy companies like Shell, should be offered incentives, such as tax credits, capital grants or loan guarantees, to support the decarbonisation of the aviation sector.
We recognise that the pace of the energy transition and the fiscal measures, including tax incentives, available to governments differ from country to country.
Country-specific incentives
The Netherlands
In the Netherlands, Shell uses tax incentives. These include research and development tax credits (WBSO) which offer compensation for a portion of salary costs related to research and development. We also apply the Energy Investment Allowance (EIA) which allows us to deduct 45.5% of investment costs related to energy-efficient technologies and sustainable energy from our taxable profit. This is in addition to customary depreciation. Another incentive that we make use of is the Environmental Investment Deduction (MIA) measure, which allows companies to deduct up to 45% of the investment costs for an environmentally friendly investment. This is in addition to standard investment cost tax deductions.
UK
The UK tax regime offers tax incentives, some of which Shell uses. The primary incentive used by Shell is the research and development expenditure credit (RDEC). The RDEC is a taxable credit on certain qualifying research and development (R&D) expenses borne by a company. If an R&D expense qualifies, then it generates a taxable credit that can be used to offset UK tax liabilities. If there are no tax liabilities to offset against the RDEC, then the value of the credit can be paid out to the company in cash. Shell in the UK spends around £200 million annually on R&D. This and other types of incentives used in the UK are not specific to Shell, and are widely available to other businesses in the UK.
Nigeria
Shell uses a number of incentives in Nigeria. These include:
- The Investment Tax Allowance (ITA), which reduces taxable profit by 50% of the qualifying capital expenditure in the accounting year in which a relevant asset is acquired and first used.
- The Petroleum Investment Allowance (PIA), which allows companies that hold onshore or shallow-water leases, like Shell, to benefit from a tax uplift of 5% to 20% on the qualifying capital expenditure in the accounting year in which an asset is acquired and put to use.
- The Associated Gas Framework Agreement (AGFA), which allows the tax deduction of capital expenditure for gas development from oil revenues at the higher oil profit tax rate of 85%. The lower corporate income tax rate of 30% then also applies to gas profits.
India
India offers incentives to companies that are present in Special Economic Zones (SEZ). Shell IT Centre is a global in-house operation located in the Bangalore SEZ and is eligible for the incentives offered. Shell started to make use of these incentives in 2016. The incentives and other measures offered to investors in the SEZs include:
- Duty-free import and domestic procurement of goods for development, operation and maintenance of SEZ units.
- Corporate income tax exemption on export revenues for companies in the SEZ of 100% for the first five years, 50% for the next five years and 50% tax exemption for the following five years on export profit which is reinvested.
- Exemption from indirect taxes on supplies to SEZs.
Shell’s Projects and Technology (P&T) and Shell Business Operations (SBO) in India benefit from the Service Export from India Scheme (SEIS), which promotes the export of services from India by providing a credit for some exports which can be used to offset certain tax liabilities. The government has also established a refund mechanism for Goods and Services Tax (GST) paid by exporters of services.
USA
Federal, state, and local governments in the USA offer tax incentives for capital investments and job creation. Incentives available to Shell in the USA can vary among the state and local tax jurisdictions. Generally, the tax incentives pursued by Shell encourage the upgrading of manufacturing facilities, investment in new energies, and creation of jobs for local economies. US tax incentives typically grant: property tax abatements or reductions for a certain number of years; sales tax exemptions or rebates for purchases of machinery and equipment; and/or income tax credits.
