Big Oil firms are enhancing their annual profit margins by hundreds of millions of dollars through tax avoidance—by shifting revenue to finance and insurance offshoots located in island tax havens instead of accurately reporting income derived from drilling in oil-producing countries where levies are higher.
That's according to a Reuters analysis of corporate filings and rating agency reports.
The news outlet explained how the misreporting and transfer of oil profits to offshore insurance affiliates works:
Bermuda and the Bahamas aren't exactly big players in the oil-and-gas world. They don't produce any of the fuels at all. Yet the islands are deep wells of profit for European oil giant Royal Dutch Shell.
In 2018 and 2019, Shell earned more than $2.7 billion—about 7% of its total income in those years—tax-free by reporting profits in companies located in Bermuda and the Bahamas that employed just 39 people and generated the bulk of their revenue from other Shell entities.
If the oil-and-gas major had booked the profits through its headquarters in the Netherlands, it could have faced a tax bill of about $700 million based on the Dutch corporate tax rate of 25%. The bill would have been much steeper if the income were reported in oil-producing countries—some of which levy rates exceeding 80%.
Shell, BP, Chevron, and Total use subsidiaries in the Bahamas, Switzerland, Bermuda, the U.K. Channel Islands, and Ireland to provide their global operations with banking, insurance, and oil-trading services... These subsidiaries, in turn, book profits that go lightly taxed or entirely tax-free.
These perfectly legal arrangements "highlight the ability of international oil corporations to game global tax systems and avoid handing over revenue to nations where they conduct their core business," Reuters noted.
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I am shocked that fossil fuel companies whose business model is predicated on destroying our shared climate also don’t want to pay their fair share of taxes.— Connal Hughes (@connal99) December 9, 2020
How oil majors shift billions in profits to island tax havens https://t.co/wq8boHEvhu
Raymond Baker, president of Global Financial Integrity, a nonprofit organization lobbying for stronger regulation to prevent corporate tax avoidance, told Reuters that "these companies are deliberately exploiting gaps in tax law and weak enforcement, and they are doing so in order to make enormous profits."
"The victims," he added, "are the countries and their budgets and their people."
The coronavirus pandemic and associated drop in oil prices have deepened budgetary challenges in oil-producing countries. According to Reuters, "Nations such as Angola, Brazil, and Trinidad, who rely heavily on oil tax revenues, have had to moderate spending and increase borrowing to respond to the health crisis."
But things wouldn't be quite so dire, tax fairness advocates say, if fossil fuel companies accurately reported profits and paid higher tax bills in oil-producing countries.
Waziri Adio, executive secretary of the Nigeria Extractive Industries Transparency Initiative, which advocates for stronger governance of oil revenues in the African nation, told Reuters that the practice of oil companies sheltering profits offshore may be legal but that doesn't make it fair.
"This is something that robs Nigeria of legitimate revenues and will affect the ability of the government to deliver badly needed services to its citizens," Adio said.
In response to the report, climate justice activist Jamie Henn tweeted: "Big Oil companies are making billions of dollars destroying our future and then hiding it in offshore tax havens—remind me why we don't send the CEOs to prison, seize this ill-begotten wealth, and use it to save human civilization?"