Shell has long maintained major operations in the Netherlands, including thousands of employees, technical services, IT operations and research activities. Yet the oil giant has reportedly paid little or no Dutch corporate income tax for years.
New research by the Centre for Research on Multinational Corporations, known as SOMO, and Leiden University tax-law professor Jan van de Streek may help explain how this is possible.
The researchers examined leaked internal Shell documents concerning transfer pricing—the prices charged between subsidiaries belonging to the same multinational group. According to their analysis, several Dutch Shell companies provided technical, administrative and IT services to foreign subsidiaries while charging only their costs, without adding a normal profit margin.
Under the OECD’s arm’s-length principle, transactions between related companies should generally be priced as though they were taking place between independent businesses. Charging no profit margin could therefore reduce the profits recorded in the Netherlands and, consequently, the amount of Dutch corporate income tax owed.
SOMO estimates that Shell avoided more than €1.1 billion in Dutch tax between 2002 and 2017 through these service-cost arrangements. The researchers also identified profits being concentrated in low-tax jurisdictions, including Shell trading activities in the Bahamas and intellectual-property arrangements in Switzerland. (ftm.nl)
Shell categorically rejects suggestions that it acted illegally. The company says its transfer-pricing arrangements comply with OECD guidelines, have been discussed transparently with the relevant tax authorities and are reviewed by its external auditor. (ftm.nl)
The Dutch tax authority declined to comment on Shell specifically because of tax-confidentiality rules. This means that the researchers’ conclusions have not been confirmed by a court or tax authority.
However, the findings raise an important question: does Shell record enough of its global profits in the Netherlands, where significant parts of the work are actually performed?
Personal remarks
Europe needs strong oil companies, but they should pay their fair share of taxes—just like everyone else. The fact that there is ongoing controversy over Shell’s Dutch tax position raises legitimate questions about whether the Dutch tax system is ensuring that this principle is applied consistently and transparently.