Third LAC Tax Policy Forum Cooperative Compliance - a business perspective Wilbert Huijbens; Tax Manager; Shell International BV Montevideo, Uruguay;
DEFINITIONS AND CAUTIONARY NOTE Resources: Our use of the term resources in this announcement includes quantities of oil and gas not yet classified as Securities and Exchange Commission of the United States ("SEC") proved oil and gas reserves or SEC proven mining reserves. Resources are consistent with the Society of Petroleum Engineers 2P and 2C definitions. The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this announcement "Shell", "Shell Group" and "Royal Dutch Shell" are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words "we", "us" and "our" are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. "Subsidiaries", "Shell subsidiaries" and "Shell companies" as used in this announcement refer to companies in which Shell either directly or indirectly has control, by having either a majority of the voting rights or the right to exercise a controlling influence. The companies in which Shell has significant influence but not control are referred to as "associated companies" or "associates" and companies in which Shell has joint control are referred to as "jointly controlled entities". In this announcement, associates and jointly controlled entities are also referred to as "equity-accounted investments". The term "Shell interest" is used for convenience to indicate the direct and/or indirect (for example, through our 23 per cent shareholding in Woodside Petroleum Ltd.) ownership interest held by Shell in a venture, partnership or company, after exclusion of all third-party interest. This announcement contains forward looking statements concerning the financial condition, results of operations and businesses of Shell and the Shell Group. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Shell and the Shell Group to market risks and statements expressing management s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward looking statements are identified by their use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "goals", "intend", "may", "objectives", "outlook", "plan", "probably", "project", "risks", "seek", "should", "target", "will" and similar terms and phrases. There are a number of factors that could affect the future operations of Shell and the Shell Group and could cause those results to differ materially from those expressed in the forward looking statements included in this announcement, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for Shell's products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including regulatory measures addressing climate change; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. All forward looking statements contained in this announcement are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward looking statements. Additional factors that may affect future results are contained in Shell's 20-F for the year ended 31 December 2012 (available at www.shell.com/investor and www.sec.gov ). These factors also should be considered by the reader. Each forward looking statement speaks only as of the date of this announcement, March 14, 2013. Neither Shell nor any of its subsidiaries nor the Shell Group undertake any obligation to publicly update or revise any forward looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward looking statements contained in this announcement. Shell may have used certain terms, such as resources, in this announcement that the SEC strictly prohibits Shell from including in its filings with the SEC. U.S. investors are urged to consider closely the disclosure in Shell's Form 20-F, File No 1-32575, available on the SEC website www.sec.gov. You can also obtain these forms from the SEC by calling 1-800- SEC-0330. 2
ABOUT SHELL Recognised for technical innovation and megaproject delivery Employs 87,000 people in more than 70 countries Committed to social and environmental sustainability Producing the equivalent of 2,300 barrels of oil every minute Partners in innovation with Ferrari F1 team Active in alternative energies such as biofuels and wind One of the world s bestknown brands Selling transport fuel to some 10 million customers a day 3
COMPANY PROFILE We are active in more than 70 countries Worldwide, we employ 87,000 full-time employees Our fuel retail network has around 44,000 service stations Each day we produce 3.3 million barrels of oil equivalent In 2012, we generated earnings* of $27 billion We had $29.8 billion on net capital investment We spent $1.3 billion on R&D Royal Dutch Shell plc is a UK company, with its headquarters in The Netherlands We are listed on the stock exchanges of Amsterdam, London and New York * on a current cost of supplies basis attributable to Royal Dutch Shell plc shareholders Source: 2012 Annual Report and Form 20-F 4
OUR BUSINESSES Upstream refers to the ways we find and extract crude oil, natural gas and bitumen Downstream refers to the ways we transform them into finished products Exploring for oil and gas Producing oil and gas Extracting bitumen Mining oil sands Refining oil into fuels and lubricants Producing petrochemicals Developing fields Supply and distribution Shipping and trading Shipping and trading Converting gas to liquid products (GTL) Producing biofuels Liquefying gas by cooling (LNG) Generating wind power B2B sales Regasifying LNG Retail sales B2B sales GAS for cooking, heating, electrical power Retail sales FUELS AND LUBRICANTS for transport CHEMICAL PRODUCTS for plastics, coatings, detergents 5
COOPERATIVE COMPLIANCE 6
SIMON HENRY (CFO RDS PLC) AT OECD FORUM ON TAX ADMINISTRATION MEETINGS: From our point of view, such (enhanced) relationships offer the best chance of efficient and predictable tax regimes for our investments. And they help us to comply with the law, and to manage our tax-related risks are just one set of the risks that we face in our day-to-day activities. (Buenos Aires, Jan 2012 & Moscow, May 2013) REVENUE TRANSPARENCY: In 2012 Shell paid USD 21 bln direct taxes, USD 3,5 bln royalties and 85 bln indirect taxes. Over 2012 the effective tax rate was 47% In addition to this Shell also pays taxes through it joint ventures. 7
COOPERATIVE COMPLIANCE ALL PARTIES BENEFIT Cooperative compliance relationships provide more certainty and lower costs for both tax administrations and tax payers. For tax administrations: Earlier and better information on tax payers business and tax position enabling more effective risk management and more appropriate resource allocation; go after the genuine wrongdoers. Real time monitoring of application in practice of legislation by tax payers enabling to earlier implementation of remedial law changes. Enhances a country s position to create national income by attracting foreign investments For tax payers: Speedier resolution of open issues resulting in real time certainty (less open years; de-risking our business) Lower compliance cost because of less intrusive audits and less discussions on filed tax returns 8
COOPERATIVE COMPLIANCE CAVEATS No one size fits all: cooperative compliance programs need to be adapted to local circumstances (e.g. policy, legislation, administrative practives and culture) Cooperative compliance relationships may well be a (longer term) end goal; any improvement in the relationship between tax payer and Tax Authority is important: follow a growth model Cooperative compliance is not about getting sweetheart deals; No room for cosiness: Rulings and discussions are fully compliant with applicable law and regulations. 9
COOPERATIVE COMPLIANCE - CRITICAL ENABLERS Structural Legislative framework Corporate framework Managerial Endorsement from the top Culture shift Practical SMART Kpi s Resources 10
CRITICAL ENABLERS - STRUCTURAL 1. Legislative framework Tax officials must be able to provide (irrevocably) certainty in advance Issues from the past should be resolved enabling Tax Authority and tax payer to work in the present (eg. via project approach). Tax payer and Tax Authority should be able to agree to disagree. 2. Corporate framework: Tax Control Framework (TCF) A company should have a design and operational effective TCF in place 11
CRITICAL ENABLERS - MANAGERIAL 3. Senior level endorsement: Commitment from a company s board and the government official who is ultimately responsible for the enforcement of tax law in a specific country is essential. 4. Culture shift: Working on the basis of Cooperative compliance requires culture shift within Company and Tax Authority to truly adopt the principles of transparency, cooperation and trust (no one way street ). Change management Program. An enhanced relationship is built on trust, therefore an enhanced relationship should not be preceded by an audit to test whether a taxpayer could be trusted. 12
CRITICAL ENABLERS - PRACTICAL 5. Agree (SMART) kpi s: Tax authorities should commit to actual and measurable improvements in greater certainty, earlier resolution of tax issues, less audits and lower compliance costs. A Company should commit to an open, transparent and speedy manner in presenting and discussing tax issues. 6. Resources Company and Tax authorities should make available resources to support implementation of an enhanced relationship as the implementation phase requires additional effort. 13
Shell s experiences 14
SHELL S EXPERIENCE Shell has positive experience with this concept in the UK, the NL, Singapore and Australia (as a pilot). And exploring potential partnerships with other with countries. Actual and measurable benefits: Regular meetings resulting in better working relationships and real time resolution of tax issues. All material tax issues are put forward and discussed (open book approach) Past and Present: almost no tax uncertainties. Future: certainty based on disclosed but amendable facts ( many roads lead to Rome ). No extensive audits and fewer outstanding tax returns. Fewer challenges from external auditors as tax issues are already agreed. 15
SHELL S EXPERIENCE IN THE NETHERLANDS Horizontal Monitoring in the Netherlands In general, Shell has bi-monthly meetings with tax inspectors (CIT, Employment tax, VAT and customs) In those meetings, Shell brings forward any tax uncertainty (project) accompanied with a factual description and Shell s view on the tax effects After discussion, the tax inspector either agrees or disagrees In the latter case, project can be amended according to the inspector s wishes or we agree to disagree and go to court Usually Shell receives certainty about the project s tax effects within 2 to 4 weeks. In principle audits are system oriented (the design and operational effectiveness of the NL TCF) to avoid extensive data oriented audits. 16
ENHANCED RELATIONSHIP WITH HMRC (UK) A framework of formal engagements has been developed to facilitate regular, constructive interaction between the teams. Risk assessment process HMRC perform an annual risk assessment to establish the basis for how they will approach dealings with Shell in coming year. The assessment helps to ensure no surprises. Shell has committed to file tax returns in a timely manner. Following the filings, Shell meets with HMRC to identify the key risks/filing positions reflected in the returns. HMRC subsequently responds through a formal risk assessment session. This process enables parties to resolve a significant number of uncertainties and routine compliance issues, without formal correspondence. Shell will normally schedule ad hoc meetings to take HMRC through significant commercial transactions to explain structure/issues, shortly after completion. These engagements allow HMRC to ask real time questions and reduce subsequent compliance enquiries. Regular catch up with full teams Quarterly catch up with full teams forum for progressing issues, often used to share letters to close out specific issues, discuss more technical issues which can then be followed up in writing if necessary. CRM and CTL meet on a monthly basis to identify concerns and commit to actions to facilitate the relationship (for instance, to nudge issues that may otherwise be stuck). 17
TRIPARTITE RELATIONSHIP UK, NL, SHELL HMRC (UK) MoF/NL Revenue (NL) Real time multilateral MAP 3 June 2013 18