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Shell to simplify share structure

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Royal Dutch Shell plans to streamline its organisational structure, bringing its current dual-share model together into a more conventional single-share structure derived from the UK PLC, and aligning its tax residence with its country of incorporation in the UK.

Following a number of other Anglo-Dutch PLCs which have relocated their management structure to the UK, notably Unilever and RELX (Tax Journal’s parent company), Shell is to move much of its corporate governance to the UK, with the executive board members relocating and board meetings being held in the UK – although the company ‘will continue to be a significant employer with a major presence in the Netherlands’.

In a letter to shareholders, the Board explains the principal reasons for the move. The existing dual-share structure results in roughly 50% of dividends being paid from a Netherlands income source (the ‘A shares’) and which are consequently subject to a 15% Dutch withholding tax. The other 50%, from UK-source shares (‘B shares) are not caught by the tax. This dual-share structure was originally put in place to mitigate against the impact of Netherlands tax residence when Shell’s two parent companies were brought together in 2005.

By unifying its shares in the UK, the company expects to benefit from a much larger, single pool of shares, unencumbered by existing regulatory restrictions and free of the withholding tax, enabling it to return more cash to shareholders through larger share buybacks – a key factor for investors who continue to hold stock in oil and gas.

The move also anticipates the potential introduction of a Dutch ‘exit tax’ charge which could impact the move, should the relevant legislation be enacted in time. As Zoe Wyatt, partner at Andersen in the UK, notes:

‘The proposed Unilever “Exit Tax” bill included a provision such that it would have retrospective effect to any transactions that took place after 18 September 2020. The proposal is still to be considered by the Dutch House of Representatives, but a recent amendment to the bill means it can only have effect from the date the legislation is enacted.

‘Since there is no retrospective effect, and there remains uncertainty as to how political parties will respond to the proposed bill, it makes sense for Shell to press the button on relocation.

‘All the reasons for wanting to exit the Netherlands remain the same and if you are keen to do so, now is the time.’

Although the letter focuses on the withholding tax and operational advantages of simplification, the board may well also have considered an important point for institutional shareholders – the potential implications for FTSE listing, which could potentially be lost were the company to move its base to the Netherlands. On its Amsterdam listing, the Board letter notes: ‘We fully expect there to be no change to the inclusion of the shares in the AEX index’.

A special resolution to approve the changes will require 75% support at the 10 December 2021 shareholder meeting in the Hague.

Issue: 1554
Categories: News