A new report by Eurodad member SOMO and Friends of the Earth Europe, entitled “The Swiss Connection”, sheds light on the role of Switzerland in Shell’s tax planning. The report concludes that Shell uses Switzerland mainly for ‘tax planning purposes’. Shell’s presence in Switzerland potentially allows the company to avoid paying a significant amount of taxes where its actual economic activities take place, including in developing countries.
In addition, Shell claims to be a leader in tax transparency. The report however found that there is no transparency on the taxes that Shell pays in Switzerland, nor does Switzerland require that company accounts are made available on public record. In response to the findings in the report, Shell did not provide any specific information about their tax payments in Switzerland, nor were any specific questions on their business activities in that country answered.
The following policy recommendations can be made to improve transparency and tax governance of Shell’s business in Switzerland and help prevent tax avoidance affecting developing countries.
Policy recommendations to Royal Dutch Shell:
* Provide full transparency on tax payments made worldwide and extend the overview of “Payments to governments”, as published on Shell’s website, to include payments to the Swiss government and to other secrecy and low-tax jurisdictions.
* Provide full Country-by-country reporting, including the following information: 1. Global Overview of the Group, the name of each country in which it operates and the names of all its subsidiary companies trading in each country in which it operates (including Switzerland); 2. Financial performance in every country in which it operates, making the distinction between sales within the group and to other companies, including profits, sales, purchases, labour costs and employee numbers; 3. Assets: All the property the company owns in that country its value and cost to maintain. 4. Tax information: Full details of the amounts owed and actually paid for each specific tax.
* Increase transparency of Shell’s activities in Switzerland by providing annual accounts for each subsidiary, as well as details of cross border payments to and from each of these subsidiaries.
* Provide data on the amounts of tax avoided by making use of the Swiss subsidiaries.
* Stop making use of Switzerland for tax avoidance or secrecy reasons.
Policy recommendations to the Swiss government:
+ Switzerland should scale back its secrecy regulations, and introduce measures for greater transparency on company information and the public availability of annual reports;
+ Switzerland should adopt the EU’s Code of Conduct on business taxation, following the tax dialogue that started in 2012 which deals in particular with the different taxation of profits generated domestically and abroad.
+ Switzerland should take appropriate measures to prevent multinational corporations using Switzerland for capital shifts from developing (and developed) countries through manipulated pricing of commodity trade.
+ Following the example of Austria, Hungary, Luxembourg and the Netherlands, Switzerland should report FDI flows in more detail; in addition to standard total FDI flows and positions, the data should be presented with further breakdowns segregating resident Special Purpose Entities (SPE), to allow for insight in the division between “genuine” FDI flows and SPEs.
Policy recommendations to the European Union:
- In line with the OECD Action Plan on Base Erosion and Profit Shifting, it is recommended to require taxpayers to disclose their aggressive tax planning arrangements. More specifically, it is important that adequate information about the relevant functions performed by other members of a multinational enterprise group in respect of intra-group services and other transactions is made available to the tax administration, including transactions passing through Switzerland.
- In line with the UNCTAD World Investment Report 2013, it is recommended that moves to combat tax avoidance through OFCs and SPEs must go hand in hand with a discussion of corporate tax rate differentials between countries, the application of extraterritorial tax regimes, and the utility of triggering tax liabilities upon repatriation of earnings.
- In the frame of the EU Savings Tax Directive, there is need to expand the savings tax agreement with Switzerland to include certain further holders of capital, as well as intermediary legal entities.
- At the same time, the European Union should consider further measures to keep member countries from providing alternative incentives for corporate profit shifting, as the relocation of Shell’s business from Switzerland to low tax and secrecy jurisdictions within the EU would hardly solve the problem of developing countries’ potential tax losses.
- The EU should reconsider the strict distinction between "harmful" tax practices and "normal" tax competition, as extremely low corporate tax rates (regardless of whether they apply only to foreign income or all types of corporate income) stimulate the shifting of profits out of developing countries with higher tax rates.
- The EU recently announced its intention to examine anti-competitive corporate tax loopholes across Europe that allow companies to cut their tax bills. In these efforts, the EU should also review the role of Switzerland in such corporate tax structures.