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Monday, November 29, 2021

Shell turns its back on Royal Dutch heritage after climate ruling and dividend tax

In a circular to shareholders, the company said: “The board believes that now is the right time to simplify Shell.

“This is a critical enabler for delivering our strategy, making us more competitive and giving us more freedom to seize opportunities.”

The proposals won a cautious welcome from investors and analysts on Monday, including top 10 shareholder Legal & General.

However, many said they remained focused on more important issues – most notably Shell’s long-term plans to reach net zero carbon emissions and improving investor returns.

Nick Stansbury, head of climate solutions at L&G Investment Management, said: “Our initial impression is that these are positive, shareholder-friendly steps to simplify Shell that will allow more capital to be returned to shareholders more efficiently.”

Another top 10 investor added: “It removes an unnecessary complexity and isn’t hugely expensive to achieve in the context of such a large business.”

Shell’s current, convoluted arrangements have their roots – ironically – in a previous attempt to simplify the business just 16 years ago.

The company’s history as a joint Anglo-Dutch enterprise stretches all the way back to 1907, when Shell Transport and Trading Company first linked up with Koninklijke Nederlandse Petroleum Maatschappij (the Royal Dutch Petroleum Company). 

For almost a century afterwards, the enlarged business drifted on with a dual structure that kept parallel boards in both the UK and Netherlands – adding an extra layer of bureaucracy to every major decision.

It was only when disaster struck in 2005 that bosses were forced to change these arcane arrangements, after investors blamed the over-reporting of oil reserves on chronic management failures. 

Under that simplification, Shell was unified under a British-based company – Royal Dutch Shell Plc – but it remained headquartered in the Netherlands and registered there for tax purposes.

The dual class share structure was put in place in a bid to recognise the different tax regimes that British and Dutch investors faced respectively. 

These differing tax systems may have had a bearing on Shell’s decision, and the company’s move echoes one taken by the consumer goods company Unilever last year when it opted to ditch its own Anglo-Dutch structure and consolidate as a London-based business.

Beyond their dual nationalities, the companies have something else in common – they were both opponents of the 15pc dividend tax in the Netherlands.

The dividend tax means that owners of Shell’s Dutch A shares are liable for the levy while owners of UK B shares are not.

It has in effect constrained stock buybacks to the B shares, with even these limited to 25pc of the average trading volume – about $2.5bn. 

Yet while Dutch prime minister Mark Rutte’s administration has tried to tackle the issue, it has instead tied itself in knots.

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