ONWARDS from January 9, the fateful day when we first learnt of the problems at Shell, the situation looked worrying. Since then concern has only grown. Now the Shell story is deeply troubling.

It is upsetting enough that Shell has identified more dodgy reserves. But it is worse than that. Shell is having to delay publication of its annual report. This suggests either that PricewaterhouseCoopers, the auditor, felt unable to sign off the accounts or that the company felt unable to ask the accountant to perform that task. Neither thought is at all good.

These revelations give more than enough reasons to set off a serious bout of collywobbling. But the sentence at the end of the second paragraph of the statement Shell issued to the Stock Exchange yesterday entrenches these fears. The words are worthy of reprise since not only are they rare in the context of any UK company, they also come from what was, until recently, a pillar of the corporate business community. It was not for nothing that Shell was thought as being an arm of the Civil Service. The very name of the firm was a watchword for reliability.

“Management must balance its public statements on this subject against the risk of prejudice in any subsequent legal action,” it said. This is not, it must be emphasised, an admission of guilt. But it shows Shell knows it is walking a knife-edge.

It remains possible that the Shell imbroglio boils down to nothing more than a cock-up made worse by cack-handed presentation. Yes, there is no smoke without fire, but one cannot assume that Shell will be engulfed by an inferno. And in this context it is worth wondering why US investors, who appear to be most exercised about Shell’s behaviour, are exerting so much pressure on the firm. Where British and Dutch investors might have been willing to let dust settle and be content to give Shell time to attend to its wounds in private, the Americans have done nothing but fan the flames of Shell’s distress.

US investors tend to be more active in the execution of what they see as their rights of ownership. They may also be more eager to ascribe blame to unpleasant events and pursue recognition of culpability in the courts. But could part of the explanation as to why they are pushing so hard come down to national pride? Scandal brought Enron, WorldCom and Martha Stewart low, and undermined confidence in stock market ethics.

Could it be that some of our American cousins are pursuing Shell with vigour in the hope of demonstrating it is not only US firms that can be tarred with these sorts of brushes? That does not mean Shell should be left to wash its dirty linen in private. No, it has a clear and unavoidable obligation to inform investors about anything that may have a material impact on the business. But it would be a grave shame if Shell is being damaged as a result of an unnecessary exercise in back covering.

In situations like this it is tempting to hope for the best. But it is probably wisest to fear the worst. Since this is most likely what the majority of investors — on both sides of the Atlantic — are doing, it is a little curious that Shell shares, although weakened, have not been knocked harder. Could it be that there is a body of investor opinion that believes Shell is now so lame that it could be snapped up in a takeover? It would have to be an agreed deal and, even then, the Anglo-Dutch structure would make it tricky to bring off. But if a bidder were willing to accept that Shell had lost its way, rather than having lost the plot entirely, it might provide the caretaker managers a way out of an increasingly painful predicament.

EU judges sneak in tax harmonisation

IN THEORY most national tax matters are specifically excluded from the European Union’s powers, unless decisions are unanimous. This is supposedly guaranteed under the draft European constitution. In practice, legal judgments at the European Court of Justice are increasingly forcing member states to change and harmonise their tax systems, including tax rates. The European Court’s judgments are exploiting the inherent discrimination implied by having separate national systems, to push tax harmonisation as an integral requirement for a fair single market.

So far, the material effects have been small. Wednesday’s Budget, for instance, introduced accounting for transfer pricing between a company’s UK subsidiaries, although this is a pointless administrative burden, in order to end discrimination against subsidiaries elsewhere in the EU. Another European Court decision threatens the finance lease system.

Yesterday, the court struck a potentially much bigger blow for harmonisation. Its Advocate General, whose opinions the judges usually follow, has ruled that Finland was wrong to rebate corporate tax paid by a Finnish company to a shareholder who was taxed on its dividend, when dividends received from a Swedish company were not eligible for the rebate. This discrimination, says the Advocate General, discourages Finns from investing elsewhere in the EU.

Accountants at Deloitte & Touche point out that this judgment, if confirmed, could have a big impact in the UK and lead to harmonisation of dividend taxes across Europe.

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