Shell Scraps Oil Investments Following British Tax Hike

December 19, 2005

A BBC news report this Saturday offers a vivid example of how tax policy affects investment decisions by firms, especially in global markets where small differences in tax climates can tip the balance in favor of one nation over its neighbors.

Apparently oil giant Shell is scaling back planned oil exploration in the North Sea following a steep increase in Britain’s tax on oil profits. From the story:

The company had planned to hire three drilling rigs, but has decided to reduce the number to two.

Shell said it took the decision after a review prompted by the chancellor’s decision to increase a charge on profits from 10% to 20%…

Shell, which has interests in about 50 oil and gas platforms in the North Sea, had planned to bring in the additional rigs to cover new exploration projects in the coming years.

The company said: “We had tendered for three rigs but after an investment review following the announcement of an increase in supplementary corporation tax we have unfortunately only been able to commit to two rigs at this time.

“We are disappointed by the government’s recent decision and we are continuing to evaluate the impact that the proposals might have on our business.”

Shadow Scottish Secretary David Mundell said the chancellor had already been warned of the possible “dire consequences” of the tax move.

“This news confirms our worst fears – Gordon Brown’s massive tax hike is going to prove bad for Britain and bad for Scotland,” said the Conservative MP. (Full story here.)

For more on international corporate tax climates, check out our recent Special Report: “The U.S. Corporate Income Tax System: Once a World Leader, Now A Millstone Around the Neck of American Business.”


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