Between 2018 and 2023, Shell’s trading subsidiary in the Bahamas, Shell Western Supply and Trading Limited, posted profits of $6.2 billion. The office employs 37 people. That works out to $28 million in profit per employee per year, compared to a group-wide average of $270,000.
The ratio of 104 to 1 is not the product of exceptional individual productivity. It is the output of a transfer pricing structure in which a subsidiary classified as a “risk-taking entrepreneur” under OECD guidelines captures the margin on oil trading flows from West Africa and Latin America to the UK and Singapore, in a jurisdiction that levied zero corporate income tax on any company before 2024.
This is the central finding from a joint analysis by SOMO, the Dutch corporate accountability research organisation, and Jan van de Streek, professor of tax law at Leiden University, based on Shell financial reports leaked following a 2020 hack of global cloud provider Accellion. The documents, described as some of the most complex corporate financial records the researchers had encountered, include confidential transfer pricing reports for oil supplies, LNG, and royalty payments between Shell subsidiaries across multiple countries. Van de Streek estimated that understanding a single report required a full year of analysis. His characterisation of the deliberate opacity is precise: “That seems to have been done on purpose: making it so vague that no one understands it.”
The Three-Jurisdiction Architecture
Shell’s tax minimisation structure as revealed in the leaked documents rests on three geographic nodes, each exploiting a different feature of the global transfer pricing regime.
The Bahamas operation, SWST, functions as the intermediary between Shell’s oil-producing subsidiaries in West Africa and Latin America and its downstream operations in the UK and Singapore. By positioning SWST as the entity that bears economic risk for the trading transactions, Shell qualifies it for the higher profit margins that OECD guidelines permit for risk-taking entities. The substance question, whether 37 employees can credibly manage the commercial risks associated with the trading volumes and geographical complexity SWST claims to control, is precisely what Van de Streek and SOMO contest, though they acknowledge the arrangement is technically within the bounds of current law.
SOMO estimates that up to $5.6 billion in profit from higher-tax Shell subsidiaries in the UK, Nigeria, and Brazil may have been shifted to SWST. The three countries collectively missed out on between $1.2 billion and $2.8 billion in tax revenue over 2018 to 2023 as a result. In Nigeria, where Shell extracts oil, the corporate income tax rate is up to 50%. In Brazil, where it also pumps oil, the rate is 34%. In the UK, where it processes oil, the main rate is 25%. In the Bahamas, through 2023, the rate was zero.
The second node is Switzerland, specifically Shell Brands International in the canton of Zug, which manages the company’s intellectual property, including roughly 6,000 brand names, logos, and patents. Filling stations operated by Shell subsidiaries worldwide, excluding the US, Turkey, and South Africa, pay royalties to SBI for the use of this intellectual property, directing profits to Zug, where Shell paid an effective corporate income tax rate of approximately 10% between 2018 and 2022. SOMO’s analysis characterises the royalty rates as inflated and determined using what it describes as “junk science”: SBI charges approximately 15% of filling stations’ pre-tax profits in royalty payments. At those levels, and with the differential between the Swiss effective rate and the rates above 20% that Shell faces in its major operating jurisdictions, the savings from the arrangement amount to at least hundreds of millions of euros. Van de Streek considers this aggressive tax avoidance, but legal.
Where the Law Is Breached
The Netherlands is where the researchers conclude Shell’s practices cross from avoidance into illegality. Three Dutch entities, SGSI, SIEP, and SITI, provide technical, IT, and administrative services to Shell subsidiaries worldwide. Under OECD transfer pricing guidelines, which are embedded in Dutch law, these entities should charge a market-based price including a profit margin for the services they provide, allowing the Dutch state to tax those profits. Instead, for years these entities charged only their costs, passing services to Shell subsidiaries globally at zero margin, resulting in zero taxable profit and zero corporate tax in the Netherlands.
Shell’s 2019 admission that it had never paid corporate tax in the Netherlands was presented at the time as the legitimate result of offsetting Dutch profits against global losses. The leaked documents, combined with Van de Streek’s analysis, suggest the reality was different: the Dutch entities’ cost-only pricing meant no profit was recorded to offset against, because the accounting architecture was constructed to produce that outcome. SOMO estimates that Shell may have avoided more than €1.1 billion in Dutch corporate tax between 2002 and 2017 through this mechanism.
The adjustment that SIEP made in 2018, beginning to charge a profit margin for some of its services following discussions with Dutch tax authorities, is, in Van de Streek’s reading, self-damaging for Shell’s historical position. If cost-only pricing was legitimate, there would have been no reason to change the methodology. The switch confirms that cost-only pricing was not the arm’s length standard it was claimed to be.
Shell’s response to FTM is that cost-based contributions without mark-ups were “a valid and legitimate pricing method” under OECD guidelines before 2019, and that post-2019 adjustments were made in line with updated OECD guidance. The company states that its transfer pricing positions have been disclosed to and discussed with relevant tax authorities, and that its cost allocation system is reviewed and approved by its external auditor. It categorically denies illegal practices.
The State Aid Question and Systemic Implications
The legal dimension extends beyond Shell’s own arrangements. Van de Streek raises the possibility that if the Dutch tax authority was aware of the cost-only pricing structure and declined to enforce the mark-up requirement, this could constitute unlawful state aid, the same legal theory on which the European Commission prevailed against Apple in Ireland, resulting in the €13 billion back-tax order upheld by Europe’s highest court in September 2024. The Dutch tax authority, citing confidentiality obligations, declined to comment on Shell’s specific arrangements, while noting that high profitability in a low-tax country with few employees can be a signal warranting investigation.
The broader significance of the Shell Files, as SOMO terms the leaked documents, lies in what they reveal about the transfer pricing system rather than about Shell alone. Vincent Kiezebrink, SOMO’s senior researcher, describes the OECD’s 1995 transfer pricing framework as “as leaky as a sieve,” pointing out that the same rules are used by most multinationals and tax authorities worldwide, and that the volume of missed taxes globally is, in his estimation, astronomical. Intercompany transactions subject to transfer pricing rules represent more than a third of all global trade, estimated at $7 trillion to $9 trillion annually by the Tax Justice Network in 2019.
The UN process that could replace or supplement the OECD framework with a global treaty on transfer pricing is ongoing but slow, initiated by the group of African states that bear disproportionate costs from profit shifting by the multinationals extracting resources from their territories. The Netherlands, where Shell’s Dutch arrangements would need to be policed, has not been among the countries actively supporting that reform process. Shell, meanwhile, has a member of its transfer pricing team on the UN committee responsible for developing the new rules, a position of regulatory influence in the reform of the very system its arrangements have been found to exploit.
