ActionAid and SOMO reveal billion dollar tax break benefiting Shell, Total and Eni

How Shell, Total and Eni benefit from tax breaks in Nigeria’s gas industry

Oil giants Shell, Total and Eni have received $3.3 billion in tax breaks in Nigeria in connection with the country’s largest gas extraction project, according to ActionAid and SOMO in a new report on taxation in developing countries. Shell received the largest chunk of the tax breaks, totalling $1.7 billion.

SOMO and ActionAid researched annual reports to calculate the tax exemptions that the three companies received. The three oil giants have enjoyed exceptionally long tax breaks and substantial tax allowances in Nigeria since 1999, while they have been operating at a profit since 2005. “The research into tax breaks is pretty tricky because companies that profit from these breaks are not open about it at all,” notes SOMO researcher, Mark van Dorp. “This research shows that the tax break is exceptionally large: after the first five years of exemptions, more than $3.3 billion in tax exemptions have been siphoned off.”

Tax breaks

The tax breaks consist of two times the annual health care budget for Nigeria. ActionAid in the Netherlands, Nigeria and Great Britain are very critical about these generous tax breaks. Education, infrastructure and health care in Nigeria are in a particularly bad state due to a lack of government revenues. Out of every one hundred Nigerian children, fifteen die before the age of 5. Eleven million children cannot go to school. Out of a population of 182 million, 110 million people must subsist on less than one dollar per day.

“Tax breaks are enormous handouts to the oil companies, above and beyond their usual profits,” Gijs Verbraak, policy advisor of Tax Justice at ActionAid Nederland, points out. “Meanwhile, the Nigerian Government has insufficient tax revenues to provide for good education and good health care. “

Findings

The new figures in the research have been verified by fiscal experts in both Europe and Nigeria. The findings were sent to the companies in the consortium at the end of 2015 and beginning of 2016. NLNG, Shell, Total and ENI have not refuted the conclusions of the research. Earlier ActionAid research already revealed that developing countries lose out on at least $138 billion in tax revenues as a result of tax breaks for multinational companies. The charity believes that companies should be required to contribute their fair share to the public services in each country where they operate and that they have to report in a transparent way about their profits, taxes and tax breaks.

The NLNG consortium consists of Dutch-British Shell, French Total and Italian Eni, which produces liquefied natural gas (LNG) in Nigeria. The gas extraction operations required new investments, but these would have been paid off without any tax breaks. SOMO and ActionAid did research on these exceptionally long tax breaks, which are written into a special Nigerian law. Of special concern is the fact that there is a new law currently being drafted that will give even more foreign companies tax breaks for a period of ten years.

Recommendations

ActionAid in Nigeria has urged the Nigerian Parliament to revoke this bill, so that companies will actually start contributing to the development of the country. ActionAid in the Netherlands demands the Dutch Government to discuss with Shell its use of excessive tax breaks in developing countries. ActionAid and SOMO, together with a number of other organisations, are currently conducting an international campaign for Tax Justice.

Links

• The Action Aid briefing paper ‘Leaking revenue. How a big tax break to European gas companies has cost Nigeria billions(opens in new window) ‘.
• An Action Aid blog on this case ‘What a US$3.3 billion tax break means for Nigeria’s children’(opens in new window) .