Definitions

a

• Accumulated earnings

  Accumulated earnings reflect the profits retained and not used for any other purpose, such as to pay dividends to shareholders.

• Advance tax agreements

  These are formal or informal rulings and clearances which tax authorities provide when there are complex transactions, unclear regulations or substantial amounts involved. These agreements reduce uncertainty and should always be in line with the letter and spirit of the law.

• Appropriate substance

  Appropriate substance means that there should be an adequate number of employees, with suitable qualifications to perform their jobs, and appropriate physical presence in the relevant jurisdiction. Many businesses will for good reason outsource some of their activities to third-party service providers, but the core income-generating activities would not.

• Arm’s length principle

  This valuation principle is commonly applied to commercial and financial transactions between related companies. It says that transactions should be valued as if they had been carried out between unrelated parties, each acting in its own best interests.

• Artificial arrangements

  These are transactions or activities which are undertaken without a core commercial purpose.

b

• Base erosion

  A country’s tax base, which is the amount the government can raise in taxes, may be eroded by some companies engaging in profit shifting. As a result of perceived abuses by some, the OECD launched the base erosion and profit shifting project to protect members against base erosion.

• Base erosion and profit shifting

  The OECD project to tackle artificial base erosion and profit shifting (BEPS). Under the guidance and legislation introduced to support the BEPS project, companies are taxed “where their economic activities take place and value is created”.

• Bonuses

  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.

• Branch

  A branch is an office or business presence in a location other than where the corporate entity is established.

c

• Capital projects

  These are long-term, capital-intensive investment projects with a purpose to build upon, add to or improve a capital asset. Capital projects are defined by their relatively large scale and cost, and require considerable planning and resources.

• Commercial reasons or commercial considerations

  Commercial reasons or commercial considerations refer to activities undertaken with a view to making a profit. An entity’s presence in a country should be the result of commercial activities and it should have the appropriate substance to perform those activities. The management and directorships of the operating company should be in the country of operation.

• Consumption taxes

  A tax due on the purchase of goods and services. Typically, this is a percentage of the sales price of the item or service. It is an indirect tax as it is levied and administered by the retailers or service providers, but it is borne or paid by the individual purchasing the item. The companies that charge the tax have to administer the collection and payment on behalf of the government.

• Co-operative compliance

  This can vary between countries but in essence means that taxpayers and tax authorities have open and proactive discussions on matters that may impact a taxpayer’s tax return and seek to resolve any areas of interpretation.

• 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.

• Corporate income tax accrued

  This is the amount of corporate income tax for 2022 recorded as current-year tax in Shell’s Consolidated Statement of Income. This also includes withholding tax accrued. It does not include prior-year adjustments, deferred tax or provisions for uncertain tax liabilities.

• Corporate income tax paid

  This comprises corporate income tax paid in 2022, as recorded in Shell's Consolidated Statement of Cash Flows, and includes accrued withholding taxes on dividend, interest and royalty payments to Shell entities. In some cases, this may include payments made in relation to previous years or future years as tax payments are often made in arrears or in advance. It does not include withholding taxes collected by Shell on dividends paid to shareholders. Nor does it include corporate income tax paid by non-consolidated joint ventures and associates.

• Country

  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.

• Country-by-country reporting (CbCR)

  Country-by-country reporting was introduced for all large multinational enterprises (MNE) as part of the OECD BEPS project. The report should disclose aggregate data on income, profit, taxes paid and economic activity among tax jurisdictions in which the MNE operates. The report is filed with the main tax authority (typically the tax authority in the country in which the MNE has its head office) which can share it with tax authorities in other countries.

• 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.

d

• Dividend

  After payment of costs and taxes, a company may choose to make a dividend payment to its shareholders as a return on their investment in the company. After payment of dividends, any remaining surplus is termed "retained earnings" and is available for reinvestment in the business.

• Double taxation

  This arises where the same income is taxed twice by two or more different tax jurisdictions.

e

• Effective tax rate (ETR)

  This is the ratio of tax compared with the profits in the financial statements.

• Employee taxes

  These include employee income taxes, employee social security contributions and similar payments. They also include taxes collected in joint ventures where Shell is responsible for managing the payroll of the joint venture

• 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.

• Employment taxes

  These are wage taxes and may include social security contributions.

• Environmental taxes

  Environmental taxes are taxes and duties levied on energy products (including vehicle fuels): motor vehicles and transport services; and on the supply, use or consumption of goods and services that are considered to be harmful to the environment, as well as management of waste, noise, water, land, soil, forests, biodiversity, wildlife and fish stocks.

• Excise duties

  A tax on manufacturers that is due at the point of production rather than sale. Companies which manufacture products that are subject to excise duties are responsible for reporting and paying these taxes. Excise taxes are in addition to other forms of indirect tax, such as customs duties, valued-added tax or goods and services taxes, and typically form part of the cost of the product.

• Extractive Industries Transparency Initiative (EITI)

  EITI is a global standard for the good governance of resources like oil and gas. EITI requires disclosure of information, such as publication of data showing how much money governments receive from resource extraction.

f

• Fees

  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.

• Final investment decision

  The final decision to invest in a capital project.

• Fiscal policy

  A government’s approach to taxes and spending. The policy will vary depending on different electoral parties, governing systems and between countries.

g

• Goods and services tax

  A goods and services tax is a value-added tax levied on most goods and services sold for domestic consumption. The tax is paid by consumers, but it is remitted to the government by the businesses selling the goods and services.

h

• Holding company

  The principal purpose of this type of company is to hold and manage investments in other companies or joint ventures. Holding companies differ from operating companies, for example they need less staff, but they still have commercial value as a way to manage all the different investments within a group.

i

• 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.

• Intellectual property

  Intangible property that is the result of creativity. This can include patents, trademarks and copyrights.

• International Compliance Assurance Programme

  The International Compliance Assurance Programme (ICAP) is a voluntary risk assessment and assurance programme for open and co-operative engagement between multinational enterprises and tax administrations in jurisdictions where the enterprises have activities.

l

• Low-tax or zero-tax rate jurisdiction

  See Tax Haven.

m

• 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.

n

• Non-recoverable VAT

  A business can typically reclaim the value-added tax (VAT) charged on its purchases against the VAT it charges others on sales that it makes. The government therefore should receive VAT from the end consumer and not at each stage of the supply chain. However, a business may have non-recoverable VAT costs, where offset is not available or permitted.

• Number of employees

  This is the average number of employees in the year, including permanent and temporary staff on long-term contracts. Some of our businesses are labour-intensive. Others, such as holding companies which hold shares in subsidiaries or joint ventures, are not.

o

• 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.

• Other payments to governments

  These correspond to Upstream-related payments included in our Report on Payments to Governments. They comprise royalties, production entitlements, bonuses and fees.

p

• Permanent establishment

  This describes the activities that take place in a country that requires the filing of a tax return and possibly the payment of taxes in that country. It is another name for a taxable presence.

• Prepayment

  Corporate income tax payment regimes differ. Many tax regimes require payments to be made in instalments. These payments may be due before the final tax liability is known or agreed.

• Production entitlements

  This is the host government’s share of production. It includes the government’s share as a sovereign entity or through its participation as an equity or interest holder in projects within its home country.

• Production-sharing contracts or concessions

  A production-sharing contract is a contractual arrangement between the holders of a resource, typically a country’s government, and a resource extraction company, concerning how much oil or gas each party would receive. The company bears the mineral and financial risk of the initiative. It explores, develops and, if successful, manages production. Costs are recovered through the sale of oil or gas and what is left over is split depending on the terms of the contract.

• Profit before tax

  Profit or loss before tax is reported in Shell's Consolidated Statement of Income. This is the profit or loss calculated using Group accounting policies. Local statutory accounts may need to comply with local accounting standards which may be different. The local statutory accounting profit or loss is the basis for the calculation of taxable profits in individual countries or locations. Local tax laws are then applied to the profit or loss. Profit before tax shows the Group accounting result but not the profits subject to tax after compliance with local tax laws. Any share of profit or loss from non-consolidated joint ventures and associates is attributed to the country where the shareholding entity is based. This figure is reported after accounting for corporate income tax accrued in the joint venture or associate's accounts and is included in the shareholding entity's profit before tax.

• Profit shifting

  This is the term used to describe artificial arrangements whereby companies move profits from one jurisdiction to another jurisdiction in order to minimise tax payments.

r

• Revenue agency

  See Tax authority.

• Revenues

  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.

• Royalties

  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.

s

• Sales taxes

  See Consumption taxes.

• Stated capital

  This information is sourced from local statutory accounts and is the amount of money invested in return for shares. The OECD rules require aggregated data, including for stated capital. This means that when a holding company invests in a subsidiary, which then invests in another subsidiary, all within the same country, each of those investments is counted and aggregated.

• Statutory tax rate

  This is the tax rate imposed by law in a country.

t

• Tangible assets

  The data reported in line with CbCR comprise property, plant and equipment and inventories as at the closing balance sheet date on December 31, 2022.

• Taxable presence

  See Permanent establishment.

• Tax accrued

  The amount of corporate income tax for 2022 recorded as current-year tax in Shell’s Consolidated Statement of Income. This also includes withholding tax accrued. It does not include prior-year adjustments, deferred tax or provisions for uncertain tax liabilities.

• Tax authority

  Also known as a revenue agency, a tax authority is the body responsible for administering the tax laws of a particular country or regional or local authority.

• Tax borne

  Tax that represents a cost to Shell and impacts its financial results. This includes tax paid (see Introduction to country-by-country reporting) as well as non-corporate taxes, such as employer social security contributions.

• Tax charge

  The aggregate of current tax and deferred tax included in the determination of profit or loss for the period in our Annual Report and Accounts.

• Tax collected

  Tax that Shell does not directly incur but collects from its customers and employees on behalf of governments. This includes indirect taxes such as value-added tax and goods and services tax, as well as employee income tax and social security contributions.

• Tax haven

  Typically, this is considered to mean one country offering significantly lower tax rates or other tax features compared with the average rates or features offered by other countries.

• 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.

• Tax paid

  This includes corporate income tax paid in 2022. In some cases, it may include payments made in relation to previous years or future years, as tax payments are often made in arrears or in advance. It also includes accrued withholding taxes on dividend, interest and royalty payments to Shell entities. It does not include withholding taxes collected by Shell on dividends paid to shareholders.

• The B Team

  The B Team is a not-for-profit initiative aimed at ensuring that business becomes a driving force for social, environmental and economic benefit. Shell is a founding member of The B Team Responsible Tax Working Group but is not a member of the overall B Team initiative. Through The B Team, Shell and other companies have been able to give a voice to their views on fair taxation. The B Team Responsible Tax Principles, which Shell has helped to develop, reflect the views of leading companies and civil society organisations on a responsible approach to tax.

• Total employee costs

  Total employee costs include remuneration, pension and share costs.

• Trademark royalties

  Payments for the right to use trademarks. Trademarks are a legally registered name, word, symbol or design which identifies the goods or services of a business or company.

• Trade tariffs

  A tax on imports or exports between sovereign states. See Customs duties.

• Transfer pricing

  This refers to the setting of the price for goods and services sold between related entities within a group. Transfer pricing should be based on the arm’s length principle, which means that profits are allocated to the countries where the relevant economic activity takes place and cannot be artificially taken somewhere else.

v

• 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.

w

• Withholding taxes

  A withholding tax is an income tax to be paid to the government by the payer of the income rather than by the recipient of the income. The tax is thus withheld or deducted from the income due to the recipient. Withholding taxes usually apply to royalties, interest or dividends.