The changing tax landscape

The global tax landscape is changing as governments seek to modernise tax systems to deal with economies that are increasingly digitalised. Traditional tax concepts are being challenged as businesses earn revenues in multiple countries even if they are not physically present in those tax jurisdictions. In addition, low-tax jurisdictions are continually in the spotlight with many countries debating whether a low-tax policy in one jurisdiction may have a negative impact on other countries.

In recent years, international organisations, such as the Organization for Economic Cooperation and Development (OECD), and governments have discussed ways of addressing these challenges. Most recently and steered by the G20, the OECD has been developing proposals for a coordinated two-pillar response, which was supported in October 2021 by over 130 countries.

Pillar One of the framework 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 that jurisdiction.

Pillar Two introduces new rules to ensure a new global minimum level of tax at 15% for all profits made by multinationals.

Shell supports the OECD’s framework and we are putting in place the systems we need to comply with the rules when they are introduced. We strongly support a transparent and coordinated approach to improving the global tax system, rather than unilateral, non-coordinated legislative actions. Countries should decide, build consensus, and agree on the applicable legislation. Shell believes deep and broad consensus is needed to ensure the kind of coordinated implementation of international fiscal agreements that will yield clear, predictable, and principle-based tax legislation. Business input is necessary for the development of these rules.

Shell provides input to the OECD and to countries implementing the framework through a public consultation process. Pillar One rules are still being developed by the OECD and implementation by countries is not expected until 2024 at the earliest. Pillar Two is generally more advanced and is expected to apply to Shell from 2024.