LONDON (Reuters) - Royal Dutch Shell has changed its redundancy terms so it can claim tax refunds that some UK workers would otherwise have been able to claim on redundancy payments, internal documents seen by Reuters show.
The move comes as the Hague-based oil giant is slashing 5,000 jobs this year following the collapse in oil prices and its merger with smaller UK rival BG Group.
The UK government allows employees who have worked part of their career overseas to reclaim some, or in some cases all, of the tax due on severance payments.
On April 1 this year, however, Shell introduced "targeted tax equalization of severance payments", whereby "Shell will claim any tax reliefs or tax refunds on the severance payment that are available," according to a presentation to staff.
The tax refunds in question can be claimed in relation to ex-gratia lump sum severance payments, rather than legal minimum redundancy. This means that Shell can include the right to claim any tax refund linked to the employee's overseas service as a term of the ex-gratia severance package.
Shell said the change was consistent with its policy of smoothing out the impact of tax on employees moving overseas, aimed at ensuring staff face the effective tax rates of their home country no matter where they work.
The equalisation policy means Shell incurs higher costs when an employee goes on assignment to a higher tax jurisdiction and receives a saving when one moves to a lower tax jurisdiction.
The company declined to say whether the application of the equalisation policy to redundancy payments would save money. Spokesman Jonathan French said Shell's severance packages were "currently among the most generous in the sector".
"The policy is designed to promote equal treatment of employees with the same home country," he said.
Ude Adigwe, an organiser with the GMB labour union in Scotland, said the measure was unacceptable.
"It would seem that companies are trying to defray or offset the impact on their finances by putting the burden on the ordinary worker," he said.
The cost to British workers of Shell's policy change could be significant.
In an example cited in one Shell presentation, an employee entitled to 100,000 pounds severance, who faces a marginal tax rate of 45 percent and has spent half their career abroad, would receive 68,500 pounds after tax and equalisation.
If an employee enjoyed the full benefit of the foreign service tax relief, they would receive almost 16,000 pounds more. If they had spent 75 percent of their career abroad the payment would be tax free.
Shell declined to say how many people might be affected by the policy change which should mostly affect UK employees.
Shell said in December it planned to cut 2,200 jobs after its takeover of BG but did not say how many UK workers would lose jobs. After completing the BG deal in February, Shell announced another 2,800 cuts, of which 475 would be from its oil and gas production division in the United Kingdom and Ireland.
Usually companies don't take account of the foreign service tax break when calculating employees' payoffs as part of large scale redundancies, said David Whincup, employment partner at law firm Squire Patton Boggs.
This means it is up to the departing worker to claim back a refund in respect of the Foreign Service Relief, but following its policy change Shell will claim the benefit instead.
Employment experts said Shell's approach was not common, although Alain Cohen, director at employment law firm Ashby Cohen, said he had heard of another oil company doing the same.
According to a report produced by law firm Mayer Brown in 2013, a company needs to reach agreement with the UK tax authority, Her Majesty's Revenue & Customs, before it can begin such a scheme.
The UK tax authority declined to comment on the Shell case, citing taxpayer confidentiality.
By Tom Bergin
(Editing by David Clarke)
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It was shaping up to yet another dull OPEC+ meeting. Cut and dry. Copy and paste. Rubber-stamping yet another monthly increase in production quotas by 432,000 b/d. Month after month of resisting pressure from the largest economies in the world to accelerate supply easing had inured markets to expectations of swift action by OPEC and its wider brethren in OPEC+.
And then, just two days before the meeting, chatter began that suggested something big was brewing. Whispers that Russia could be suspended made the rounds, an about-face for a group that has steadfastly avoided reference to the war in Ukraine, calling it a matter of politics not markets. If Russia was indeed removed from the production quotas, that would allow other OPEC+ producers to fill in the gap in volumes constrained internationally due to sanctions.
That didn’t happen. In fact, OPEC+ Joint Technical Committee commented that suspension of Russia’s quota was not discussed at all and not on the table. Instead, the JTC reduced its global oil demand forecast for 2022 by 200,000 b/d, expecting global oil demand to grow by 3.4 mmb/d this year instead with the downside being volatility linked to ‘geopolitical situations and Covid developments.’ Ordinarily, that would be a sign for OPEC+ to hold to its usual supply easing schedule. After all, the group has been claiming that oil markets have ‘been in balance’ for much of the first five months of 2022. Instead, the group surprised traders by announcing an increase in its monthly oil supply hike for July and August, adding 648,000 b/d each month for a 50% rise from the previous baseline.
The increase will be divided proportionally across OPEC+, as has been since the landmark supply deal in spring 2020. Crucially this includes Russia, where the new quota will be a paper one, since Western sanctions means that any additional Russian crude is unlikely to make it to the market. And that too goes for other members that haven’t even met their previous lower quotas, including Iraq, Angola and Nigeria. The oil ministers know this and the market knows this. Which is why the surprise announcement didn’t budge crude prices by very much at all.
In fact, there are only two countries within OPEC+ that have enough spare capacity to be ramped up quickly. The United Arab Emirates, which was responsible for recent turmoil within the group by arguing for higher quotas should be happy. But it will be a measure of backtracking for the only other country in that position, Saudi Arabia. After publicly stating that it had ‘done all it can for the oil market’ and blaming a lack of refining capacity for high fuel prices, the Kingdom’s change of heart seems to be linked to some external pressure. But it could seemingly resist no more. But that spotlight on the UAE and Saudi Arabia will allow both to wrench some market share, as both countries have been long preparing to increase their production. Abu Dhabi recently made three sizable onshore oil discoveries at Bu Hasa, Onshore Block 3 and the Al Dhafra Petroleum Concession, that adds some 650 million barrels to its reserves, which would help lift the ceiling for oil production from 4 to 5 mmb/d by 2030. Meanwhile, Saudi Aramco is expected to contract over 30 offshore rigs in 2022 alone, targeting the Marjan and Zuluf fields to increase production from 12 to 13 mmb/d by 2027.
The UAE wants to ramp up, certainly. But does Saudi Arabia too? As the dominant power of OPEC, what Saudi Arabia wants it usually gets. The signals all along were that the Kingdom wanted to remain prudent. It is not that it cannot, there is about a million barrels per day of extra production capacity that Saudi Arabia can open up immediately but that it does not want to. Bringing those extra volume on means that spare capacity drops down to critical levels, eliminating options if extra crises emerge. One is already starting up again in Libya, where internal political discord for years has led to an on-off, stop-start rhythm in Libyan crude. If Saudi Arabia uses up all its spare capacity, oil prices could jump even higher if new emergencies emerge with no avenue to tackle them. That the Saudis have given in (slightly) must mean that political pressure is heating up. That the announcement was made at the OPEC+ meeting and not a summit between US and Saudi leaders must mean that a façade of independence must be maintained around the crucial decisions to raise supply quotas.
But that increase is not going to be enough, especially with Russia’s absence. Markets largely shrugged off the announcement, keeping Brent crude at US$120/b levels. Consumption is booming, as the world rushes to enjoy its first summer with a high degree of freedom since Covid-19 hit. Which is why global leaders are looking at other ways to tackle high energy prices and mitigate soaring inflation. In Germany, low-priced monthly public transport are intended to wean drivers off cars. In the UK, a windfall tax on energy companies should yield US$6 billion to be used for insulating consumers. And in the US, Joe Biden has been busy.
With the Permian Basin focusing on fiscal prudence instead of wanton drilling, US shale output has not responded to lucrative oil prices that way it used to. American rig counts are only inching up, with some shale basins even losing rigs. So the White House is trying more creative ways. Though the suggestion of an ‘oil consumer cartel’ as an analogue to OPEC by Italian Prime Minister Mario Draghi is likely dead on arrival, the US is looking to unlock supply and tame fuel prices through other ways. Regular releases from the US Strategic Petroleum Reserve has so far done little to bring prices down, but easing sanctions on Venezuelan crude that could be exported to the US and Europe, as well as working with the refining industry to restart recently idled refineries could. Inflation levels above 8% and gasoline prices at all-time highs could lead to a bloody outcome in this year’s midterm elections, and Joe Biden knows that.
But oil (and natural gas) supply/demand dynamics cannot truly start returning to normal as long as the war in Ukraine rages on. And the far-ranging sanctions impacting Russian energy exports will take even longer to be lifted depending on how the war goes. Yes, some Russian crude is making it to the market. China, for example, has been quietly refilling its petroleum reserves with Russian crude (at a discount, of course). India continues to buy from Moscow, as are smaller nations like Sri Lanka where an economic crisis limits options. Selling the crude is one thing, transporting it is another. With most international insurers blacklisting Russian shippers, Russian oil producers can still turn to local insurance and tankers from the once-derided state tanker firm Sovcomflot PJSC to deliver crude to the few customers they still have.
A 50% hike in OPEC’s monthly supply easing targets might seem like a lot. But it isn’t enough. Especially since actual production will fall short of that quota. The entire OPEC system, and the illusion of control it provides has broken down. Russian oil is still trickling out to global buyers but even if it returned in full, there is still not enough refining capacity to absorb those volumes. Doctors speak of long Covid symptoms in patients, and the world energy complex is experiencing long Covid, now with a touch with geopolitical germs as well. It’ll take a long time to recover, so brace yourselves.
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