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Royal Dutch Shell Plc Tax Dodgers: Offshore – and out of reach to the Revenue

Tax gap


  • The Guardian, Tuesday 3 February 2009

Ownership of the iconic scallop sign which appears on thousands of Shell petrol station forecourts has migrated to a Swiss tax haven.

The Anglo-Dutch oil giant which made $50bn (£35bn) in pre-tax profits in 2007, shifted its main tax-residence to the more benign climate of Holland after the merger of its twin UK and Netherlands arms in 2005.

Shell simultaneously moved the ownership of its immensely valuable brands. Legal ownership of the trademarks now belongs to a subsidiary set up in the low-tax canton of Zug, which is entitled to charge royalties for their use to other Shell companies.

The rights were shifted in February 2005 to Shell Brands International AG, a holding company registered in the former Alpine village of Baar, now part of a mini-conurbation joined to Zug itself.

The canton hosts about 18,000 companies, mostly foreign entities set up to take advantage of corporate tax rates as low as 8%, with personal tax for expatriate executives at a similarly enticing level.

This means that, legally speaking, Shell is now simultaneously a British public company, tax-resident in Amsterdam, whose brands are Swiss.

Shell says: “Shell Brands International paid Shell UK Ltd for certain trademarks. This payment was subject to corporation tax on capital gains in the UK. In the future, royalties are payable for the use of the trademark by UK companies”.

In fact, no tax was paid on the sale, because Shell was able to set it against other tax losses.

The brand shift was for “entirely commercial” reasons, the company said. Control of the brands had been “very fragmented” but now there would be “more effective and consistent management of the Shell trademarks”.

Shell’s corporation tax bill to the UK was almost $1bn last year. That may seem a lot, but is actually only very small proportion of its $50bn profits.

Most of its overall tax bill goes to foreign tax authorities. According to its accounts, only 5% of its total of $18bn tax payments went to Britain in 2007, 10% the previous year, and 6% in 2005.

Shell says this is “broadly in line with the proportion of group profits made in the UK”.

In 2002, Gordon Brown as chancellor announced plans to tighten up on UK companies which shifted their tax residence.

But a few days before the rule came into effect, the accountants Ernst & Young, who specialise in tax avoidance, registered a British off-the-shelf company called Forthdeal Ltd. Despite being British, it was controlled by Dutch directors and had Dutch tax residence.

Forthdeal was subsequently passed on to Shell. Shell merged its UK and Dutch operations during 2004 and placed them all in this vehicle.

It was renamed Royal Dutch Shell plc, and is now the parent of the whole of Shell’s vast organisation.

Holland was at the time attracting international businesses away from Britain, by allowing companies there to receive foreign dividends tax free.

Shell, which was subsequently criticised by sources close to revenue officials for the manoeuvre, says: “Changes came into effect in 2002 that altered the taxation of subsequently non-resident UK companies. Forthdeal was non-resident prior to the effective date of these rules. Forthdeal was therefore not subject to these changes.”

The company said the deal “allowed us to maintain tax neutrality after the merger, ie maintain the tax position prevailing before unification”.

Jeroen van der Veer, CEO of Shell, which says its UK tax was ‘broadly in line with the proportion of profits made’



The second day of a Guardian special investigation into the ‘tax gap’: the billions lost to company tax avoidance schemes – and we all foot the bill

  • The Guardian, Tuesday 3 February 2009

Three FTSE100 companies have quietly “offshored” legal ownership of their valuable trademarks to low-tax locations, the Guardian’s tax gap investigation has found. Two drug firms, GlaxoSmithKline, and AstraZeneca, both headquartered in London, have moved title to their drug brands to Puerto Rico in the Caribbean. The Anglo-Dutch oil giant Shell, although it is still a British plc operating under UK company law, has shifted its trademarks to Switzerland and its main tax residence to the Netherlands.

These are three of Britain’s most successful corporations, continuing to generate huge profits and returns for their shareholders despite the global downturn. AstraZeneca has been one of the best performing shares on the FTSE over the last year, seeing its share price go from around £21.50 to around £28.60. At the same time, its market capitalisation has gone up by more than £10bn from £31.3bn to £41.4bn. Glaxo has also been one of the few companies to see its share price go up as the economic storm rages – from around £11 a year ago to around £12.50 now.

Last week Shell revealed that its profits in the final three months of 2008 were down by more than a quarter on the previous year. The oil giant still made more than £25,000 a minute in profits and is forecasted to achieve record earnings this year of £21.5bn.

All three enjoy the benefits of being a UK plc – access to capital, enhanced reputation, proper regulation and political stability. Yet they have moved the rights to their intellectual property to tax havens. This means they can reduce their UK-based profits and hence their British tax bills by paying royalties to the subsidiary in the tax haven for use of the trademarks. Yesterday, at the start of its special investigation into 20 prominent companies, the Guardian identified the drinks giant Diageo as having similarly moved its brands to the Netherlands. Diageo managed to hold off capital gains tax on the sale by use of a legal concession.

The practice of depositing rights to “intellectual property” in tax havens is one of the factors behind a continuing war between big business and the Treasury. Industry chiefs are refusing to accept a planned clampdown on this by Alistair Darling, the chancellor, and some have been threatening to quit Britain.

AstraZeneca moved trademarks to the Caribbean island of Puerto Rico for a breast cancer drug, a migraine pill, and its top-selling anti-cholesterol preparation, Crestor. The company had a factory there manufacturing AstraZeneca drugs under a special low-tax regime. This meant that any additional profits from charging trademark royalties could also pile up in Puerto Rico, benefiting from the low taxes.

GlaxoSmithKline similarly assigned ownership of the trademark for its top-selling diabetes drug Avandia to a company in Puerto Rico. Other trademarks have been assigned to low-tax locations in the Irish Republic.

Shell, meanwhile, has shifted ownership rights of its iconic scallop-shell roadside sign out of London to a third low-tax regime in Switzerland. It was part of a carefully planned merger of its UK and Dutch arms, which enabled the oil giant to keep many operations from the grip of the British tax authorities. For tax purposes, Royal Dutch Shell plc is now resident in the Netherlands. The company told us that the brand shift to the tax haven canton of Zug was not for tax avoidance, but for “entirely commercial” reasons. “There has been no impact on the Shell brand in the UK,” the company said. It added that there would now be “more effective and consistent management of the Shell trademarks”.

GlaxoSmithKline’s head of tax, Helen Jones, defends the transfer of its trademarks to Puerto Rico and Ireland saying that it is a “widespread and totally accepted practice” to charge other Glaxo companies royalties for such intellectual property. Gordon Brown has only collected an average of 5% of Glaxo’s £6.6bn profits as British corporation tax over the last five years. But Glaxo says the great majority of its operations are actually overseas, and prefers to point to the much higher overall “tax rate” published in last year’s accounts – 28.7% of its profits. This figure covers all potential tax liabilities everywhere, and includes the drug company’s major presence in the US, where the normal tax rate has been 35%.

AstraZeneca, which will not disclose the size of its current UK corporation tax charge, also says there is nothing wrong with holding intellectual property in Puerto Rico. It said: “All prices paid on inter-company goods and services are set in accordance with the arm’s length principle … as enshrined in UK law since 1999. All transactions involving the UK are fully disclosed to HMRC.” It said its existing tax disputes round the world stemmed merely from arguments about how to “resolve competing claims and avoid double taxation on the same profits”. It, too, points to a large overseas presence and a relatively high worldwide tax rate of 29.5%. A major dispute with AstraZeneca is due to be heard at a UK tax tribunal next year.

Guardian Article

RELATED: Royal Dutch Shell tax avoidance 28 July 2009

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