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Call for Shell to alter its plan to unify

FINANCIAL TIMES: Call for Shell to alter its plan to unify

31 May 2005


By Clay Harris


Royal Dutch/Shell should modify its unification proposals to minimise the potential tax burden on a relatively small group of individual shareholders in the UK, an investment industry leader said yesterday.


Under the scheme due to be considered by shareholders next month, UK holders of Royal Dutch who accept shares in the new unified Royal Dutch Shell will be treated as if they had disposed of their old shares, giving rise to a potential capital gains tax (CGT) liability.


Institutional investors are not affected, meaning the burden will fall on individual holders. Other shareholders, including the majority of UK investors who own Shell Transport & Trading shares, do not face the same liability from the complex plan to unify the Dutch and UK companies.


Angela Knight, chief executive of the Association of Private Client Investment Managers and Stockbrokers, said UK holders of Royal Dutch, the Dutch part of the oil and gas group, should be offered a loan note alternative.


Loan notes, a common instrument in UK takeovers, enable shareholders to spread out their “disposal” and ameliorate CGT exposure. Ms Knight, economic secretary to the Treasury in the last Conservative government, said responses from 16 Apcims member firms showed that at least 1,080 investors, with aggregate Royal Dutch holdings of £80m, were affected.


She expected the total to be twice that, and said the investors involved were, on average, well into their 70s.


Ms Knight said: “Presenting a big tax bill to a group of elderly pensioners is an unacceptable side effect of the restructuring. At the very least, Shell should offer the alternative of loan notes or similar as other companies have done in the past.”


She has spoken to Shell and written to the paymaster general, the minister responsible for the Inland Revenue.


Shell said yesterday: “All Royal Dutch shareholders have the same entitlement to Royal Dutch Shell shares under the offer. All shareholders are being treated equally under the terms of the transaction, which is structured on a pre-tax basis.


It added: “It is not possible to treat everyone equally on a post-tax basis when so many jurisdictions’ tax laws are involved. Under UK law, there are many provisions under which individuals can reduce or eliminate any tax payment upon acceptance of the Royal Dutch offer.”

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