London-based multinational oil and gas company, Shell Plc will take a 2.4 billion dollar tax hit in the fourth quarter as the company will have to pay taxes to both European Union and the United Kingdom for excess profits made in the past few months. The company had earlier stated that it does not expect to be liable to pay any windfall taxes in the United Kingdom in 2022.
Shell Plc will be paying tax in the United Kingdom for the first time in five years. The company has got tax rebates for its operations in the past four financial years.
In a trading update, the company announced that additional taxes levied in the European Union and the deferred tax impact from an increase in UK Energy Profits Levy is expected to be around $2 billion.
The multi-billionaire dollar British oil and gas company made large amounts of profits in the past few months as volatility in oil and gas markets increased demand for energy commodities. As prices skyrocketed for energy commodities, profits made by the energy producers increased at record levels.
In October 2022, Shell Plc announced that it has doubled its profits by earning 8 billion pounds within 13 weeks. The company was able to reap such amounts of profits as prices for energy commodities increased in the market. It is important to note that production costs did not change much during the same period.
As prices of oil and gas increased in the domestic markets and international markets, both European Union and the United Kingdom decided to levy extra taxes known as windfall taxes on these excess profits.
A few months ago, UK Chancellor of exchequer Jeremy Hunt announced that the British government will toughen existing windfall taxation provisions on oil and gas operators working in the North Sea. Mr. Hunt announced that taxes will be increased from 25 percent to 35 percent. The timeline for taxes was also extended by two years till 2028.
A few months ago, European Union also agreed to levy 33 percent of profits on oil and gas companies as a solidarity contribution. Companies can pay the levy from excess profits made in either 2022 or 2023. This ‘solidarity contribution’ levy will be in addition to the average taxes payable by the company.
In the third quarter of the financial year, Shell Plc took advantage of an 80 percent investment allowance related to the UK windfall taxes. This helped the company reduce tax bills from the British government in Q3. Despite allowances and cuts, the company took a hit of 360 million dollars in that quarter.
Shell Plc said that it is expecting to have paid somewhere between $ 4.3 billion and $ 4.7 billion as taxes in all parts of the globe, in the fourth quarter.
