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Shell: tax ripped out as in-house deals double

by Michael West | May 8, 2017 | Energy & Environment, Finance & Tax

The latest financial statements from oil and gas giant Shell show just one tax haven connection. The appendix to a Shell submission to the Senate Inquiry into Corporate Tax Avoidance revealed 21 tax haven connections.

Once again, poor disclosure mars the accounts of a multinational company operating in Australia.

What could Shell possibly be doing conducting so much business with itself? For four years, its related parties in the Netherlands, Bermuda, Luxembourg and Singapore have accounted for roughly half of the trade with Shell in Australia, a group which profits from natural resources extracted from Australian soils and seabeds. Some $A4.4 billion in purchases were made by Shell associates offshore from 2010 to 2014, according to Senate submissions.

Likewise, according to Shell’s financial statements just lodged with the corporate regulator, the vast bulk of its debt came from related parties too. Has Shell, like Chevron, been lending to itself at friendly low rates from an overseas company then jacking up the interest rate here so as to funnel millions in interest payments offshore? It is hard to tell. Shell is certainly not as bad as Chevron but there is not enough detail in the public accounts, almost nothing on the tax haven dealings, to to get a feel for “transfer pricing of money”.

The latest accounts for Shell Energy Holdings Australia Limited (SEHAL) show finance charges (on the $US13.3 billion to $US16.5 billion which Shell owed its sister entities overseas during the year) jumped from $US174 million to $US485 million. That’s profit being snipped offshore at the interest line before tax is paid.

At the bottom line, Shell made a loss in Australia last year. On its $US1.1 billion which it disclosed as revenue, it paid $US11.6 million in income tax. The year before it paid a whacking $US773 million relating to one-off transactions.

Shell no longer owns the red and yellow-blazoned Shell petrol stations. They were sold to Dutch group Vitol in 2014 and are now housed in a Vitol company called Viva Energy Australia, whose accounts are yet to drop with the corporate regulator. SEHAL houses the oil rigs and gas assets, the “upstream” businesses, and Viva Energy the “downstream” operations.

In the three years to 2015, Shell had racked up around $60 billion in revenue (when it owned the petrol stations and the upstream business) and appeared to pay zero tax. We say “appeared” because it is hard to tell with asset shuffles and entity changes what actually happened.

Shell pumped $20 billion a year from motorists but paid no company tax

For the government, as it heads into the Federal Budget tomorrow, one of the most worrying things about the latest set of SEHAL accounts is royalties take (via the Petroleum Resource Rent Tax or PRRT) tumbled sharply from $US257 million in the year to December 2015 to $US127.3 million last year.

That’s a huge drop in income tax while the royalties to government were sliced in half.

Among other metrics, gearing fell from 50 per cent to 47.5 per cent, still high. Net debt was steady at $US16 billion. Sales to related parties spiked from $US235 million to $US446 million.

All in all, SEHAL’s accounts display more related party sales, far higher interest payments on loans to related parties and poor statutory disclosure.

In yet another failure of multinational companies to produce adequate, transparent financial statements, Shell has filed “General Purpose” financial statements for 2016 which “comply with the reduced disclosure requirements”.

That means zero information on audit fees or payments for tax advice, virtually nothing on tax haven arrangements and no detail on executive remuneration.

“Amounts due to related parties within the ultimate parent entity” Royal Dutch Shell in London almost doubled from $US44 billion to $US81 billion.

According to a submission by the Australian Tax Office (ATO) to the Senate Inquiry into Corporate Tax Avoidance in March, 95 per cent of the $112.7 billion in debt held by the foreign-owned oil and gas majors operating in Australia is owed to their related parties overseas.

The ATO estimates this resulted in $3.9 billion of interest paid offshore in 2015/16. The offshore oil and gas industry accounts for nearly a quarter of all related party debt in Australia.

According to Shell’s submission to the Inquiry in 2015, the company had done business with four entities in Bermuda, one in Luxembourg, 11 in the Netherlands, five in Singapore and nine in the UK. There is none of this in the Shell accounts.

Ironically, Shell will probably look good by comparison with its rivals Exxon and Chevron when they report. The financial statements for the former are stuck in processing at the corporate regulator but Exxon – despite a tripling in the price of gas – paid nothing in tax for its past two years of reporting. Chevron, which just lost an historic court case with the ATO, has an exemption from the regulator for reporting on time. It is citing delays associated with its court case.

Shell declined to respond to questions for this story.

This month, is conducting an analysis of the tax affairs of 20 multinational companies operating in Australia. The series is sponsored by GetUp and Tax Justice Network.

Clive Palmer’s antics are the very same ones multinationals use

Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

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