Shell plan to move tax base to UK spurs Dutch into last-ditch action

Royal Dutch Shell plans to ditch its dual share structure and move its tax residence from the Netherlands to the UK in a historic shift that sparked divided reactions on each side of the North Sea. The Dutch government launched an eleventh-hour attempt to keep Shell in the Netherlands, saying it was trying to abolish a withholding tax that had been cited by the company as a factor in whether it should remain in the country. The Dutch government told the Fin - ancial Times that the caretaker government of Mark Rutte was seeking a lastminute parliamentary majority to scrap a 15 per cent withholding tax that has long been a source of irritation to Shell and fellow Anglo-Dutch multinational Unilever. The Dutch government had earlier described Shell’s proposed move as an “unwelcome surprise”, adding that it was in “dialogue” with the company “over the consequences” of the plan. Kwasi Kwarteng, UK business secretary, hailed the move as a “clear vote of confidence in the British economy”. The oil and gas supermajor, which is under fire from Wall Street activist investor Third Point, said yesterday that the proposed move would “strengthen Shell’s competitiveness” by making it easier to do share buybacks, pursue acquisitions and pivot to clean energy. The UK is an exception among most European countries by not having a withholding dividend tax. Shell’s Dutch A shares are liable for a 15 per cent withholding tax, in effect restricting share buybacks to the company’s UK B shares. Shell’s B share purchases each quarter are capped by regulators at 25 per cent of the average daily trading volume, or roughly $2.5bn. Under the plans, Shell will continue to be listed in Amsterdam, London and New York but with a single line of shares, widening the pool to which the 25 per cent cap is applied and so allowing it to boost its buybacks. Analysts said share buybacks could more than double after the proposed move, enhancing Shell’s ability to reward investors demanding ever higher returns to hold oil and gas stocks. Shell has been incorporated in the UK with Dutch tax residency and dual class shares since 2005. If the plan is implemented, the group’s chief executive and chief financial officer will move to the UK, while “Royal Dutch” will be dropped from its name after 114 years. “In the short term, the clear benefit is the lack of liquidity restrictions on Shell’s buyback programme,” said Biraj Borkhataria, at RBC Capital Markets. Shell said it remained “proud of its Anglo-Dutch heritage” and that several divisions would remain in The Hague. But it has suffered recent setbacks. Last month Dutch pension fund ABP said it was selling all its holdings in fossil fuel companies, including a stake in Shell. The group is also appealing against a court order in The Hague in May to accelerate its emissions reductions. Additional reporting by Oliver Ralph Plurality should not be posited without necessity. Royal Dutch Shell is acting in line with that advice from philosopher William of Ockham. Yesterday, the oil company said that it would ditch dualclass shares and move its tax residence from the Netherlands to the UK. Shareholders who stay on board will benefit from the simpler structure. Payouts, especially buybacks, will be easier with a single-share class. Anglo-Dutch corporates have form for shifting allegiances. Relx, the old Reed Elsevier publishing business, became primarily British in 2015 and has outrun the FTSE 100 since. Unilever headquartered in London after shareholders rejected plans for a Dutch base. The switches help London’s financial centre, which has lost business following Brexit. Shell’s move wrung sour expressions from the Dutch government and thrilled British officials. One conspiracy theory is that Shell is moving to the UK to escape a tougher EU regime for enforcing corporate promises on carbon reduction. This summer a Netherlands court ruled that Shell must move faster to decarbonise. Less controversially, the move will remove an organisational headache for Shell. Its A shares are mostly held by Dutch investors and its B shares by UK funds. Cash flow to pay B shareholders, free of Dutch or UK withholding tax, must come from outside the Netherlands, which creates difficulties when the group holding company is Dutch. Shell has had to focus buybacks on B shares, limiting their supply. Buying back the A shares can require a fiddly withholding tax refund. The oil group has plenty of cash to return. Apart from a $2bn buyback announced in July, Shell has plans to pay out another $7bn from the sale of its Permian US onshore assets to ConocoPhillips. Sir Andrew Mackenzie blocked simplification of BHP’s dual-listed status in 2018 when he was the big miner’s chief executive, and activist Elliott was piling on pressure. Ironically, Mackenzie will now oversee Shell’s streamlining as the company’s chair, even as BHP bases itself solidly in Australia. Third Point is demanding the break up of Shell. Extra share buybacks may mollify the activist, or at least reduce its traction with other investors. For this and other reasons, Shell’s simplification makes singularly good sense.