This report details how global oil majors like ExxonMobil, Chevron, and Shell orchestrated the creation of California’s Water’s Edge tax loophole — a policy that now costs California taxpayers billions annually. It offers a first-of-its-kind, historical look at how oil giants lobbied for and have benefited from the Water’s Edge tax election, shielding their profits while taxpayers bear the cost.
Critically, eliminating fossil fuel corporations’ access to this loophole could generate between $75 to $146 million annually — funds urgently needed to address California’s budget deficit, invest in climate solutions, and provide relief for working families.
Key findings
The Water’s Edge tax policy enables multinational oil and gas corporations to avoid paying their fair share in taxes and by contrast penalizes local businesses. It now deprives California of an estimated $4 billion in annual revenue across all industries, putting climate and social programs in peril.
- Historical documents show that oil majors spearheaded the creation of Water’s Edge.
- From the start, prescient watchdogs and government leaders warned of the risks of Water’s Edge.
- Momentum is growing in multiple states to rein in corporations’ ability to avoid taxes using Water’s Edge, and California has the unique opportunity to achieve a win for both taxpayers and the climate by repealing Water’s Edge as it applies to the oil and gas industry.
This ability to offshore profits and avoid taxes is no small matter. A 2015 U.S. Senate special investigation found that Chevron reported $31 billion in profits — untaxed — through subsidiaries in 13 different tax haven countries. In 2018 and 2019 Shell earned more than $3 billion and escaped tax obligations by reporting profits as being from Shell affiliate companies located abroad in Bermuda and the Bahamas. Also in 2018, international unions filed a complaint to the Organisation for Economic Cooperation and Development alleging that Chevron funneled billions to tax haven countries through Dutch subsidiaries.
The Climate Center and the 30+ organizations that have joined to endorse this report strongly recommend eliminating the Water’s Edge election for oil and gas companies in California. It is time to put hard-working families ahead of oil and gas company profits by ensuring the deficit is not balanced on their backs.