Australia markets open in 3 hours 48 minutes
  • ALL ORDS

    7,686.10
    -14.30 (-0.19%)
     
  • AUD/USD

    0.7058
    -0.0004 (-0.06%)
     
  • ASX 200

    7,476.70
    -5.00 (-0.07%)
     
  • OIL

    78.57
    +0.67 (+0.86%)
     
  • GOLD

    1,945.50
    +6.30 (+0.32%)
     
  • BTC-AUD

    32,834.53
    -122.07 (-0.37%)
     
  • CMC Crypto 200

    526.16
    +7.36 (+1.42%)
     

Big Oil’s Tax Practices Are Under Fire As Profits Soar

Long have there been questions and scrutiny over oil majors’ tax practices, with the situation being exacerbated this year due to the global economic and energy crises in the wake of Russia’s invasion of Ukraine. While the U.K. and other countries have introduced a windfall tax on oil and gas majors, not everyone has responded in the same way. Now, the charity Oxfam is calling for greater transparency and accountability for the tax practices of major fossil fuel firms.

Oil and gas firms have always been scrutinized for paying low taxes, and scrutiny has only increased as energy bills rise. Major oil firms in the U.S. have been known to pay lower taxes than companies in other industries, this is because there is a tax code that permits energy firms to defer and avoid federal income tax payments. In addition, the 2017 Tax Cut and Jobs Act cut the effective tax rate for corporations, with oil and gas firms profiting from the change, as they are allowed to defer taxes. The favorable U.S. tax framework and additional subsidies for energy firms allow energy firms to pay comparatively low levels of tax. While some defend this tax structure due to the importance of oil as a commodity, others believe that there needs to be more transparency and higher taxes for oil giants.

It is common practice for oil and gas companies to defer their taxes, with 20 of the U.S. biggest oil firms deferring payments on federal income taxes between 2009 and 2013. These companies paid 11.7 percent of their pretax income, equating to 23.3 percentage points less than most other corporations had to pay. Further, oil majors can claim tax credits and exceptions for spending on “intangible drilling costs”, essentially when drilling expenses do not result in a functional oil well.

While this is nothing new, more people are taking notice of the tax practices of major oil and gas firms after a year of sharply rising energy prices that have sent consumer costs soaring. Energy companies worldwide have reported record profits thanks to high oil and gas prices and the rise in post-pandemic energy demand. Big Oil firms, such as Shell, Exxon, Chevron, BP, and TotalEnergies have all reported significant profits this year.

The U.K. responded to this rise in profits earlier in the year by introducing a windfall tax on oil and gas companies, with Italy taking similar measures. This revenue has been used to subsidize consumer energy bills, which have risen dramatically in recent months. However, the U.S. and several other European powers, such as Germany, are refusing to take similar measures. Many governments are most concerned with ensuring energy security in a world facing oil and gas shortages due to sanctions on Russia, as well as long-standing sanctions on other major oil players including Iran and Venezuela.

But in the face of rising inflation, politicians and environmentalists and calling for the heavier taxation of oil and gas companies profiting from the rising consumer prices. Greenpeace pointed the finger at oil majors for the “shameless profiteering”, going on to call their first-quarter profits “immoral”, earlier this year. Meanwhile, in October, President Biden accused oil and gas companies of profiteering off the Russian-Ukraine war, pointing towards the possibility of imposing a windfall tax if firms don’t increase domestic production.

And now Oxfam has filed shareholder resolutions against U.S. oil majors Exxon Mobil, Chevron, and ConocoPhillips in a call for greater transparency over their tax practices. The international organization suggested that the current tax situation undermines public interest in a fair tax system.

Daniel Mulé, policy lead on extractive industries and tax at Oxfam America, stated on Monday, “Exxon, Chevron, and ConocoPhillips’s threadbare tax disclosures leave investors, watchdog groups, and the general public in the dark about the companies’ secretive tax practices.” In his call for greater transparency, Mulé stated, “If oil and gas projects are alleviating poverty, why hide the numbers?”

However, ConocoPhillips responded by saying it “remains committed to following all applicable disclosure rules in the countries in which we operate.” Meanwhile, a Chevron spokesperson stated that the energy firm “complies with all applicable tax laws. Our approach to tax matches our efforts globally to conduct our business legally, responsibly, and with integrity.”

This is just the latest in a tirade of complaints about the tax practices of oil and gas firms worldwide. But this could be the first of many official stakeholder calls to encourage oil firms to publish their tax practices in a more transparent manner, in line with the tax standard of the Global Reporting Initiative. And it is thought that better reporting could mean a decrease in tax revenue losses of $89 billion. As governments and international organizations put greater pressure on companies to respond to the threat of climate change, this might be the impetus other world powers needed to hold energy firms accountable for their actions.

By Felicity Bradstock for Oilprice.com

More Top Reads From Oilprice.com:

Read this article on OilPrice.com