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Businesses and tax

Governments use tax to raise revenues to enable them to carry out their activities. Revenue agencies audit and collect these taxes. Most businesses are subject to tax, regardless of whether they are multinational corporations or home-office enterprises. Businesses pay direct taxes to the government and they collect indirect taxes on behalf of governments as a supplier of goods or services.

Companies pay and collect a range of taxes including:

  • Corporate income tax: 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.
  • Value-added tax (VAT): An indirect tax due on the purchase of goods and services, typically as a percentage of the sales price of the item or service. Companies administer VAT collection and payment on behalf of governments.
  • Employment taxes: Companies routinely collect income taxes on employees' salaries and pay these taxes to the government. Companies also pay employer taxes on employees' salaries.
  • Excise duties: An indirect tax on manufacturers due at the point of production rather than sale, which generally forms part of the cost of the product borne by the consumer.
  • Customs duties: An indirect tax imposed on goods as they either enter or leave a country.

When a business collects indirect taxes on behalf of a government, it carries the cost of gathering the financial data, preparing reports and executing payments. This process helps governments collect taxes more efficiently. For example, it is easier to collect VAT from businesses than from individual consumers.

Tax generates revenue for governments

Governments raise revenues through taxes to pay for public services, such as education, health care and transport, and other government expenses. Governments periodically set their fiscal policies and the rules for individual and business taxes.

According to a 2022 report from the OECD [A], social security contributions amounted to the largest share of tax revenues in the OECD countries, at just over one-quarter on average. Together with personal income taxes, these two tax types amounted to nearly one-half of tax revenues in OECD countries. OECD data on the average split of member countries' tax revenues show that corporate income tax raises around 10% of total tax revenues.

Tax treatments – such as tax rates, reliefs, exemptions and allowances or disallowances – are typically approved by national parliaments. Companies must comply with relevant tax laws. Audits and controls by tax authorities help to check whether companies are compliant.

Governments can use targeted tax incentives for specific policy objectives, such as protecting the environment, reducing carbon emissions or encouraging advances in areas like research and development. Governments often design incentives to attract domestic and international investment, which can boost economies, create jobs and develop communities. When available and appropriate, we make use of tax incentives and exemptions where we have a business activity that qualifies.

Some governments may choose to lower specific taxes, like corporate income tax. These are deliberate policy decisions and not unintended tax loopholes. Such incentives are designed by governments to attract investment in areas where development may benefit their countries. When governments offer such incentives, they may expect to raise revenues through other types of taxes, such as employment taxes or customs duties.

Most businesses pay corporate income tax where profits are made

Corporate income tax is typically due by law in countries where profits are made. This should correspond to where the business activity occurred. The tax due is determined by the tax system of the country or location where that activity took place. Governments design and apply tax rules to the profits generated in their countries and assess what is owed by businesses. Corporate income tax is payable on profits, not revenues. There are instances when a multinational enterprise like Shell faces double taxation. This is when two jurisdictions seek to tax the same business income, resulting in a company or a transaction being taxed twice. We believe that profit should only be taxed once, in line with the positions of the United Nations and the OECD.

[A] OECD (2022), Revenue Statistics 2022: The Impact of COVID-19 on OECD Tax Revenues, OECD Publishing, Paris.

Governments collect different types of taxes

Companies operating in the oil and gas industry also contribute to public finances by paying, for example, royalties, bonuses, fees and a host government's production entitlements. In 2022, we paid around $15.1 billion in production entitlements. This is more than we paid in corporate income tax.

Sources of government revenue

a24.1%c26.6%d5.7%b9.0%e20.2%f11.9%g2.5%Taxes on corporate income and gainsabSocial security contributionscTaxes on personal income,profits and gainsValue-added taxes (VAT) andgoods and services taxes (GST)deTaxes on goods and services,excluding VAT and GSTfTaxes on propertyAll other taxesga24.1%c26.6%d5.7%b9.0%e20.2%f11.9%g2.5%Taxes on corporate income and gainsabSocial security contributionscTaxes on personal income,profits and gainsValue-added taxes (VAT) andgoods and services taxes (GST)deTaxes on goods and services,excluding VAT and GSTfTaxes on propertyAll other taxesg
Source: OECD (2022), Revenue Statistics 2022: The Impact of COVID-19 on OECD Tax Revenues, OECD Publishing, Paris.

Our Payments to Governments Report shows how we directly contributed to public finances in 2022 as a result of our exploration and production activities.

Read more in Payments to Governments Report(

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.
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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.
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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 project in their proposal for country-by-country reporting. This is one of the four minimum reporting standards to which around 135 countries have committed, covering the tax residence jurisdictions of nearly all large multinational enterprises. In this report “country” may also refer to locations, jurisdictions or territories which have their own tax regimes or discrete rules.
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Customs duties
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, value-added tax (VAT) or goods and services tax. It is therefore possible to have goods which are subject to excise duty, customs duty and VAT.
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Double taxation
This arises where the same income is taxed twice by two or more different tax jurisdictions.
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Employer taxes
These are employment-related taxes borne by Shell in respect of its role as an employer and include employer social security contributions and similar payments. They also include employer taxes borne by Shell’s joint-venture partners where Shell is responsible for managing the payroll of the joint venture.
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Employment taxes
These are wage taxes and may include social security contributions.
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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 from this report. Also excluded are payments made in return for services provided by a government.
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Indirect taxes
Taxes raised on goods and services rather than income and profits. Examples include value-added tax, sales tax, excise duties, stamp duty, services tax, registration duty and transaction tax.
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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.
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Organisation for Economic Co-operation and Development (OECD)
The OECD is an intergovernmental economic organisation with 38 member countries, founded in 1961 to stimulate economic progress and world trade.
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Revenues are disclosed as a split between those from related parties and those from third parties. For CbCR, third parties would include non-consolidated joint ventures and associates for the purposes of our Annual Report and Accounts 2022. Third-party revenues include sales of products, interest income, dividend income and other income. Related-party revenues include transactions between consolidated Group entities. For example, related-party revenues arise if our Trading organisation buys oil or gas from our Upstream organisation and sells it to our Downstream organisation. Within one country or location, many of these related-party transactions may occur, as Shell entities buy and sell goods, or provide and receive services, to or from each other. Shell includes all these transactions in its aggregated CbCR data. For example, feedstock could be sold to a refinery, refined and then processed further in a chemical plant before being traded by Shell. This can occur within one country or location. In this case, each of these sales between different entities would be counted as related-party revenues. These can represent large amounts.
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Royalties are generally payments 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.
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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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Value-added tax (VAT)
VAT is a specific type of turnover tax levied at each stage of 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 those goods or services. See Non-recoverable VAT.

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