It’s Because, You Idiots, Because

The Times tells us – huffily – that Shell paid no corporation tax in Britain last year. Tsk, eh? But they manage to get this the wrong way around:

Royal Dutch Shell paid no corporation tax in Britain last year, despite paying billions of dollars in other jurisdictions.

It’s not despite paying lots in other jurisdictions. It’s because.

The Anglo-Dutch oil major paid a total of $7.8 billion in corporate income tax and $5.9 billion in royalties last year on a pre-tax profit of $25.5 billion, according to its annual report, which was published yesterday.

The company is incorporated in the UK. That means that its tax bill, to the UK, is profits minus taxes paid elsewhere. Lots of tax is paid elsewhere. Therefore there is little to no tax to pay in the UK.

It is because.

We’ll also, no doubt, see people screaming about this:

Shell received $116 million from the British government, after a similar return to the company in 2018, which it attributed to tax losses linked with investments in new North Sea fields and rebates tied to the decommissioning of ageing oil platforms.

Rebates, see, tax breaks!

Except no. The profit made on an oil field is the revenue from it, minus the costs of setting up the exploitation of the field, the costs of exploiting the field and the costs of clearing up the exploitation of the field once its done. And yes, we do tax companies on their profit.

Unhappily for the taxman it takes a few decades for this process to be completed. So, if Shell were actually taxed on its profits from a field then the taxman would have to wait 30 to 40 years to find out how much he’d get. Taxmen aren’t that patient. So, the system is that the costs of setting up the field are offset against revenues, as normal. The costs of operating the field are offset against revenues, as normal. But the oil company can’t offset those future, decommissioning, costs against the revenues from the operating field. That is, the taxman takes his share now.

Which leads to a certain problem later on. As Shell now has to pay to decommission the field – quite right too! – but there are no revenues left against which they can offset these expenses. And the taxman has already taxed past revenues and profits as if those decommissioning expenses don’t exist.

At which point the system – grudgingly, as you’d expect – says, well, OK then, you can have back the tax you paid on those profits you didn’t really make.

Of course, it’s Mr. Gell Mann who explains why we’ll believe the other things in the newspaper, those things we don’t already know about.