Oil Majors Move Billions of Profits to Tax Havens

There are conflicting views on tax havens. Many individuals and companies or entities see tax havens as a smart investment. Recently, oil majors have joined that group. They have shifted billions of dollars’ worth of profits to tax shelters.

The Details

Royal Dutch Shell Plc., the European giant, has grabbed its passport and moved its profits to the Bahamas and Bermuda for tax planning. This is nothing new. Between 2018 and 2019, about 7% of Shell’s total income was tax-free, thanks to tax havens. That accounted for profits of $2.7 billion. Yet the Shell entities in the tax havens only had 39 people.

Shell is not alone. Total, BP Plc, and Chevron also use tax havens. In addition to the Bahamas and Bermuda, other shelters include Switzerland, Ireland, and the UK Channel Islands. BP outsources its insurance administration to a Guernsey brokerage. Guernsey is in the UK Channel Islands and sets its tax rates independently. There are no corporate taxes on profits from revenues not made on the island. This makes it tempting for tax residency and private equity funds.

It Is Perfectly Legal

The use of tax havens is completely legal. All of the oil companies mentioned have previously stated that they follow international rules and are not breaking any tax laws. In many cases, including Shell’s case, a manager or director will go further and claim it is not tax avoidance. Instead, they cite other reasons for decisions regarding the real estate and location of their offices.

Oil Giants Also Create Related Companies in Tax Havens

In addition to shifting their profits to tax havens, the major oil companies have also created related companies in these havens.

Jupiter Insurance Ltd.

One example is the captive insurer of BP, Jupiter Insurance Ltd. As a captive insurer, it only serves BP entities. This insurer alone accounts for up to 14% of the total BP annual profit. Jupiter has a setup that is typical of tax haven entities. It has no employees yet six directors. As mentioned, the administration aspect of the insurance is outsourced to a company in Guernsey.

In 2019, Jupiter did not pay any UK taxes. The taxable income from Jupiter was offset with losses from other BP affiliates in the UK. According to the 2019 Tax Report, which BP released for transparency, this is a common arrangement.

The role of this captive insurance company is interesting in terms of taxes and profits. That is because the insurance company is much more profitable than the average insurance company. Jupiter pays a significantly lower portion of the premiums collected in claims. This essentially lets BP shift its profits to Jupiter under the guise of providing insurance. The result is the profits are in the tax haven where Jupiter is located, Guernsey.

To put the distinction between Jupiter and the average insurance company in perspective, consider the operating ratio. This includes costs like pay-outs as the premium share. Most American insurers have ratios of about 90%, while Jupiter’s is just 1.3%.

Many Are Against This Tax Shifting

Despite the legalities, many organizations and people are against this type of foundation asset or fiduciary management. Critics say these major oil companies are breaking the trust of their countries. They claim that the funds not paid in taxes could make a significant difference for their countries. This argument has only increased with the recent budget problems worldwide due to the pandemic. Many critics say that the companies deliberately look for and exploit loopholes to please shareholders and generate profits.

Many of these critics have called for reengineering the tax system.





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