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 the Shell 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, which is part of our tax control framework.

If we decide to use an incentive that is not specified by law and is not generally available to all market participants, we 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 India, Malaysia, the Netherlands, the Philippines and Turkey. 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 and investment decisions

Tax incentives play an important role as a policy tool for governments and are a key component of taxpayers' investment decisions. Where appropriate and in line with the Shell Responsible Tax Principles, we consider the economic value of an incentive when assessing the viability of a new business opportunity. In some cases, for example in relation to solar or wind projects, we may have several similar opportunities in different locations around the world and only a limited amount of capital available to spend. The greater the similarities between these opportunities, the more influential an incentive may be in determining where capital is ultimately invested.

Pillar Two of the OECD's proposed global taxation framework seeks to implement a global minimum tax rate of 15%. This will impact the effectiveness of any given tax incentive if the incentive reduces our local effective tax rate below 15%. We expect this impact to be felt mainly in relation to incentives which directly reduce a company's tax liability.

However, because Pillar Two will apply on a jurisdictional basis, its impact will be determined by our tax position in the country concerned. For example, in a country where some of our income from our Downstream business is exempt from taxation because of an incentive, but profits from our Upstream business are subject to a high tax rate, the latter may raise our overall effective tax rate above 15%. As a result, our Downstream business income would not give rise to additional Pillar Two tax.

Although any tax incentive may continue to achieve its policy goals under Pillar Two, we expect governments to use refundable tax credits, grants and subsidies in the longer term as a means of incentivising investment.

Country-specific incentives

Countries offer companies tax incentives to support economic development (such as job creation) or specific policies (for instance, those relating to the energy transition). Below are examples of five countries where Shell benefited from tax incentives in 2022.

India

India offers incentives to companies that are present in the country's special economic zones (SEZs). 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 imports, corporate income tax exemptions, and exemptions from indirect taxes on supplies to SEZs.

Shell's Projects & Technology organisation and Shell Business Operations in India also benefit from the Service Exports from India Scheme, 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 paid by exporters of services.

Malaysia

Malaysia offers a variety of tax incentives for industries that it considers important to its economy. The incentives are either income tax exemptions or allowances. For the oil and gas industry, the government has introduced tax incentives to encourage investment in upstream activities. These include reduced tax rates and no export duties on oil produced and exported from government-approved marginal fields. Shell benefits from several of these incentives.

Netherlands

Shell uses tax incentives in the Netherlands. These include research and development tax credits, which offer compensation for a portion of salary costs related to research and development. We also apply the Energy Investment Allowance, 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 measure, which allows companies to deduct up to 45% of the investment costs for what the Netherlands considers an environmentally friendly investment. This is in addition to standard investment cost tax deductions.

Philippines

The Philippines offers various incentives to attract foreign investors. These include corporate income tax exemptions for a period of 4-7 years, increased deductions, reinvestment allowances and customs duty exemptions for certain imports. Certain Shell companies in the Philippines benefit from these incentives, particularly the corporate income tax exemption.

Turkey

Turkey offers various investment incentives for industries that it considers of crucial importance for the country's economy. The incentives include tax reductions, tax exemptions and customs duty exemptions on imported machinery and equipment. Shell benefits from several of these incentives including excise duty exemptions for biofuels, VAT exemptions, lower withholding taxes for exploration and production activities, and certain corporate income tax exemptions.