George Osborne faces Labour challenge over Treasury’s revenue loss from lucrative fields
By David Hencke and Mike Yuille | 9 May 2016
“The remaining profits are transferred by tax-free dividends until they reach Chevron subsidiaries in Delaware” – ITF report
Chancellor George Osborne is to be challenged by his opposite number over claims of tax avoidance on oil companies’ revenues from North Sea fields.
Labour’s John McDonnell, shadow chancellor, is to demand an explanation from Osborne after a report by the International Transport Workers’ Federation (ITF) claimed that major oil companies appeared to have avoided tax on huge revenues from the North Sea.
The report by the global body that represents around 700 unions names three big oil companies, which have faced similar accusations in the Australian Parliament.
McDonnell told Exaro: “Working with our Australian colleagues, we have been able to expose yet another massive tax-avoidance device that many will consider scandalous, especially at a time oil workers have been losing their jobs.
“In the light of these revelations, I am demanding that George Osborne takes action immediately to end this abuse and confront this forcibly head on.”
Concern about the use of offshore havens to minimise tax payments were heightened last month with the huge leak of material from the Panama-based law firm, Mossack Fonseca. The International Consortium of Investigative Journalists is tonight due to release a database of more than 200,000 offshore entities that are part of the “Panama papers”.
The ITF report accuses Chevron, the US-based oil giant, of using a complex corporate structure with a series of offshore entities – including Bermuda and the US state of Delaware – for “aggressive tax minimisation”.
It says: “In 2014, when oil prices were still high, Chevron produced an estimated £1 billion of North Sea oil and gas. According to other recent investigations, no corporate tax was paid in the UK in 2014 by Shell or BP’s four main British subsidiaries.
“Chevron’s 2014 UK filings show tax charges for previous years and tax credits for the current year, but do not reveal what taxes may have been paid, if any, in the UK.”
It continues: “While lacking in transparency and raising many questions, the 2014 filings of Chevron subsidiaries connected to North Sea oil production provide a snapshot of how complex corporate structures, weaving in and out of tax havens, may be used to avoid tax obligations in the UK.”
“After tax payments are paid – or not – on oil and gas production in the UK, the remaining profits are transferred by tax-free dividends until they reach Chevron subsidiaries in Delaware with no public reporting of accounts.”
According to Chevron’s figures, it produced an average of 32,000 barrels of oil and 88 million cubic feet of natural gas every day in 2014 from the North Sea. Chevron North Sea paid £168.5 million in tax in 2014, although accounts show that this was deferred from previous years.
A Chevron spokeswoman said: “Chevron complies with all tax laws and regulations wherever it operates, including any required disclosures.”
The ITF claims come after the Federal Court in Sydney, Australia ruled last October that Chevron used a shell company in Delaware to escape potentially US$258 million in taxes.
Chevron was able to eliminate Australian taxes on US$1.7 billion of profit earned there thanks to inter-company transactions within the group, according to the ruling.
The court ordered it to pay more than US$300 million in back taxes, interest and penalties.
The oil giant insists that the transactions were legal and that it had paid all required taxes. It says that it is appealing the decision.
An inquiry by the Australian Senate is investigating “tax avoidance and aggressive minimisation by corporations registered in Australia and multi-national corporations operating in Australia”. It summoned executives from Chevron – and seven other energy giants, including Shell and BP – to explain their use of tax havens around the world.
Senior Chevron executives told the inquiry in November last year that the profit to which the Federal court’s ruling referred was still subject to federal tax in the US.
A spokesman for Shell said that it paid £1.3 billion in UK taxes between 2011 and 2013.
And a BP spokeswoman said that his company had paid £1.8 billion in UK taxes over the past six years.
But they both had not paid UK tax recently because of the fall in the oil price and huge investment in new projects.