Shell PLC (LSE:SHEL, NYSE:SHEL) and other oil and gas companies have been called to pay a higher windfall tax grew louder after its dividend and share buyback announcements took shareholder distributions to US$26bn so far this year.
The FTSE 100-listed oil colossus confirmed that it has not paid any windfall taxes.
Shell chief financial officer Sinead Gorman told media that the company had avoided having to pay any windfall tax through its investment in North Sea.
Under rules brought in by Rishi Sunak when he was chancellor earlier this year, companies can get 91p of tax relief for every £1 invested in the UK.
“Heavy capex has meant that we haven’t had extra tax coming through in this quarter yet."
She said she does expect to see “extra tax [...] quite early in the first quarter of 2023, but we’ll see what plays out with prices as well."
Goerman said the company is “simply are investing more heavily than we have, and therefore we don’t have profits which we can be taxed against."
However Shell posted underlying third-quarter profits of US$9.45mln, its second-highest ever, and announced a US$4bn share buyback, a US$0.25 interim dividend and plans for a bigger dividend in the fourth quarter.
“These profits are obscene – especially at a time when millions are struggling with soaring bills," said Frances O’Grady, general secretary of the Trade Union Congress. “The government has run out of excuses. It must impose a higher windfall tax on oil and gas companies."
“The likes of Shell are treating families like cash machines. Today is another reminder of why need to bring our energy sector back into public ownership. Households across Britain are being fleeced," the TUC boss added.
There was pushback in financial circles.
Analyst Michael Hewson at CMC Markets tweeted that "to suggest there's a bottomless pit of cash to mine is nonsense", with UK oil and gas companies paying an effective tax rate of 65% on their UK profits.
Shell's rival BP PLC (LSE:BP.) earlier this year set aside US$800mln of provisions for a prospective windfall tax.
"That isn't going to butter many parsnips," said Hewson, adding via email that "it does give an indication that the amount raised from a windfall tax isn’t a game changer when it comes to the public finances".
Instead of a higher windfall tax, new UK prime minister Sunak may just extend beyond 2025 the current levy of 25% on oil and gas profits that was introduced when he was chancellor.
It is calculated that extending the current oil and gas windfall tax by two years could raise an additional £10bn on top of the £28bn expected already.