SHELL announced that it would cease to have a joint head office in the UK and the Netherlands and that the group’s parent company would be in the UK. It has been declared as a Brexit Bonus by some, and by others as a movement to get more lax treatment on fossil fuels, to evade taxes and to engage in questionable money laundering activities. silver.
In fact, this move is all about business, not just the added overheads of maintaining a dual seat, or even the comparative costs of the UK and the Netherlands. A much bigger issue is what rules and regulations would impact Shell’s global network of subsidiaries due to the location of its ultimate parent company.
This should not be confused with circumventing COP26 decisions to limit the use of fossil fuels. This possibility is simply not on the table. Shell’s business is carried out through hundreds of locally incorporated subsidiaries subject to local rules: moving the head office to the UK does not mean moving a refinery to Antwerp. This refinery will have to comply, in the future as in the past, with the respective Belgian regulations.
The idea that this has something to do with money laundering is also absurd: the UK’s current anti-money laundering regime is that of the EU, based on successive EU AML directives and regulations. complementary. For example, the UK remittance regulation is a direct implementation of the EU regulation (reference number 2015/847). In all cases, both derive from global standards established at the Financial Action Task Force (FATF) and the respective regulations on fund transfers are derived from FATF Recommendation 16.
Shell’s decision is about business. This can arise after a cost / benefit analysis of its current structure with two HQs: what are the duplicated costs, what is the additional friction cost to keep two HQs in sync with each other, and are these costs justified? by the advantages? If the answer was “No” then a decision would be necessary as to which location was “cheapest”, however you define it.
The UK certainly has some advantages in terms of flexibility, for example in labor law, compared to the Netherlands. All-inclusive staff costs would be comparable in central London and Den Haag / Rijswijk, but reduced in the UK province more than they would in the Netherlands province.
It may not have been such comparative costs at all, but the best fit of the location to the needs and prosperity of the business. Shell is a fully global company, operating in one way or another in almost every country in the world. The EU legislative process has for some time focused on protecting the single market and its cornerstone – the euro. While Shell clearly has substantial business within the EU and the Eurozone, global petrochemicals business remains US dollar-based, so a major question arises for Shell senior management: when does the submission of the entire group to European legislation aimed at protecting the euro result in a penalty for the group as a whole from which there is no benefit?
This is reminiscent of the UK’s situation in the EU, where the UK was outside the euro area, its currency (unlike Denmark’s) was outside the exchange rate mechanism, it had no treaty commitment to join the euro, was not a signatory to the fiscal stability treaty, and did not align itself voluntarily (as Sweden did) with Eurosystem policies. A discussion of all the implications of this situation has been the main gap in the UK Brexit debate.
Shell will continue to have significant activities in the EU and Eurozone no matter what, but, with the group’s headquarters in the UK, EU legislation will only affect EU / EU affiliates. euro zone, not those of the United States, Brazil, Indonesia, Canada and so on. This is an exceptionally important factor in deliberations about the structure of the company.
If, however, one persists in the mindset that Shell chose the UK to exploit alleged fiscal and financial loopholes, then one might consider the ‘form’ of the Netherlands in this area. The Dutch, having built so many greenhouses, should be the first in favor of a worldwide ban on stone throwing.
The Netherlands has traditionally had certain characteristics of a tax advantageous situation, even of a tax haven. It has a very large network of Double Taxation Agreements (DDT) at attractive conditions. This allows a company like Shell not to pay corporate tax twice on the same profits.It must surely be flawless. Without TNT there would be an additional high barrier in the way of international business. Indeed, Shell should still be able to use the Dutch TNT network via a set of dedicated Dutch companies to hold shares in foreign subsidiaries and to lend money between group companies.
At the other extreme is the “Dutch tax ruling”, under which the annual amount of Dutch tax for a company is fixed in advance, regardless of its subsequent profits. Each dollar of additional profit, above the profit indicated to the authorities in the preliminary projection, incurs a marginal tax rate of 0%: clearly abusive but so far undisputed. This loophole is being closed by the G-7 agreement on a minimum rate of 15% corporate tax.
The G-7 deal may even have been factored into Shell’s decision, but it is not significant enough to have been the main one, nor is the comparative cost of operation in the UK by compared to the Netherlands. Shell’s decision concerns core business and is attributable to the constant introspective EU legislation aimed at strengthening the single market and the euro. Shell will operate outside the EU in proportion to the non-EU share of global GDP. World Bank figures for 2020 put this figure at 82% (global GDP of US $ 84.6 billion minus EU GDP of US $ 15.3 billion = non-EU GDP of US $ 69.3 billion. US dollars). Shell will want to prevent 82% of its activities from being governed by irrelevant European legislation.
It might not be the last to take such a step, and there’s no reason the cohort should be limited to a few already with a common UK HQ.
If you enjoyed this article, please share it and follow us on Twitter here – and like and comment on facebook here. Help ThinkScotland publish these articles by donating here.
Photo of a Shell petrol station in Wales by GarethWilley / Shutterstock.com
 Example: Shell (Japan) makes a profit of US $ 50 million and distributes it to its owner, and the Netherlands and Japan levy a 25% corporate tax. Without a CDI, US $ 12.5 million would be paid as corporate tax in Japan and the same amount in the Netherlands, resulting in an effective rate of 50%. With TNT, the US $ 12.5 million already paid to Japan creates a tax credit for the Netherlands; the Netherlands does not reimburse and the effective tax rate is 25%. A TNT records the tax already paid locally on the same currency, when the parent company calculates its tax payable on the dividend. 25% are paid, either at the level of the parent company or at the level of the subsidiary.
 The expected characteristics of a future Dutch company are discussed with the Dutch tax authorities, along with its business volume, an expected gross profit margin and costs, leading to an expected annual profit. This profit is multiplied by the Dutch corporate tax rate to extrapolate the amount of tax the company will pay. This amount is then stated in a letter from the authorities to the company, but without the underlying calculations: the letter simply states that the tax payable will be a fixed amount – forever, regardless of changes in the Dutch rate of the corporate tax and whatever the development of the company’s activity. It is an open invitation to generate more business volume and more profit, as no additional taxes are due.