PHOTO CREDITS: Reuters
By
Tom Bergin and Ron Bousso
(Reuters) – 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 Plc.
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, company filings show.
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%.ADVERTISEMENT
Shell and other oil majors are avoiding hundreds of millions of dollars in taxes in countries where they drill by shifting profits to thinly staffed insurance and finance affiliates based in tax havens, according to a Reuters review of corporate filings and rating agency reports. Shell, BP Plc, Chevron and Total use subsidiaries in the Bahamas, Switzerland, Bermuda, the UK Channel Islands and Ireland to provide their global operations with banking, insurance and oil-trading services, the documents show. These subsidiaries, in turn, book profits that go lightly taxed or entirely tax-free.
Such arrangements are not illegal. But they 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, according to academics who study corporate taxation.
The profits generated by those offshore units are enormous, despite their tiny operations. BP’s so-called captive insurer – meaning it serves only other BP entities – had $6.5 billion in cash on hand at the end of 2018 after years of robust annual profits, according to insurance rating agency AM Best Co. The insurer, Jupiter Insurance Ltd, has accounted for as much as 14% of BP’s global annual profits in recent years, according to AM Best figures and BP’s financial statements. Jupiter has six directors but no employees; BP outsources insurance administration to a brokerage located in Guernsey, a tax haven in the UK Channel Islands.
Located about 75 miles south of the British coastline, Guernsey is not part of the UK but is a British crown dependency and sets its own tax rates. It charges no tax on corporate profits derived from revenues generated outside the island.
