The Oil Drum: Europe

Royal Dutch Shell Inherits Explosive BC Conflict

When Royal Dutch Shell's directors took the reins of Shell Canada earlier this month, they inherited a brewing resource conflict in a remote corner of British Columbia that bears a striking resemblance to Royal Dutch's difficulties in other parts of the world.

The setting is a remote alpine basin southeast of Dease Lake, where the shared origin of the Nass, Stikine and Skeena Rivers gives the area its local name: the Sacred Headwaters. A stunning, expansive wilderness, it is the territory of the Tahltan people, who have hunted and trapped there for generations. It also happens to be underlain by one of British Columbia's largest potential coalbed methane deposits, to which Shell Canada -- and now Royal Dutch Shell -- holds drilling rights.

Trust tax linked to private equity buyouts

The income trust structure was a major impediment to private equity firms buying up pieces of Corporate Canada, the Finance Department was told one day before Ottawa slapped a crippling tax on the sector.

"Private equity firms generally find it difficult to compete against the income trust alternative, said an Oct. 30, 2006, memo sent to Bob Hamilton, senior assistant deputy minister of tax policy at the Finance Department.

The memo was obtained by The Globe and Mail under access to information law.

For anyone at Finance who knew the trust tax was imminent, one conclusion that's easily drawn from the memo is that taxing trusts out of existence would likely usher in even more private equity buyouts by Canadian and foreign investors, which is what happened.

What Price Victory? (scroll down)

It’s reasonable to assume that, as professionals operating within a government department nominally charged with understanding affairs of finance, the folks working for Flaherty would have some rudimentary understanding of the way key players in the private space—private equity, for example—operate.

That is private-equity firms find undervalued, cash-generating businesses, strip them down and load them up with debt. Interest expenses basically wipe out taxes owed. That’s the nutshell.

What was that about “tax leakage”?

Either the professionals have no clue about their business, or they engineered the destruction of the trust sector. Secretive, incompetent and stupid is no way to run a government.