BP 2012 Annual Report Download - page 158

dividend and will not be eligible for the dividends-received deduction
generally allowed to US corporations in respect of dividends received from
other US corporations. Dividends will be income from sources outside the
US and generally will be ‘passive category income’ or, in the case of
certain US holders, ‘general category income’, each of which is treated
separately for purposes of computing a US holder’s foreign tax credit
limitation.
The amount of the dividend distribution on the ordinary shares or ADSs
that is paid in pounds sterling will be the US dollar value of the pounds
sterling payments made, determined at the spot pounds sterling/ US
dollar rate on the date the dividend distribution is includible in income,
regardless of whether the payment is, in fact, converted into US dollars.
Generally, any gain or loss resulting from currency exchange fluctuations
during the period from the date the pounds sterling dividend payment is
includible in income to the date the payment is converted into US dollars
will be treated as ordinary income or loss and will not be eligible for the
preferential tax rate on qualified dividend income. The gain or loss
generally will be income or loss from sources within the US for foreign tax
credit limitation purposes.
Distributions in excess of the company’s earnings and profits, as
determined for US federal income tax purposes, will be treated as a return
of capital to the extent of the US holder’s basis in the ordinary shares or
ADSs and thereafter as capital gain, subject to taxation as described in
Taxation of capital gains – US federal income taxation section below.
In addition, the taxation of dividends may be subject to the rules for
passive foreign investment companies (PFIC), described below under
‘Taxation of capital gains – US federal income taxation’. Distributions
made by a PFIC do not constitute qualified dividend income and are not
eligible for the preferential tax rate applicable to such income.
Taxation of capital gains
UK taxation
A US holder may be liable for both UK and US tax in respect of a gain on
the disposal of ordinary shares or ADSs if the US holder is (i) a citizen of
the US resident or ordinarily resident in the UK, (ii) a US domestic
corporation resident in the UK by reason of its business being managed or
controlled in the UK or (iii) a citizen of the US or a corporation that carries
on a trade or profession or vocation in the UK through a branch or agency
or, in respect of corporations for accounting periods beginning on or after
1 January 2003, through a permanent establishment, and that have used,
held, or acquired the ordinary shares or ADSs for the purposes of such
trade, profession or vocation of such branch, agency or permanent
establishment. However, such persons may be entitled to a tax credit
against their US federal income tax liability for the amount of UK capital
gains tax or UK corporation tax on chargeable gains (as the case may be)
that is paid in respect of such gain.
Under the Treaty, capital gains on dispositions of ordinary shares or ADSs
generally will be subject to tax only in the jurisdiction of residence of the
relevant holder as determined under both the laws of the UK and the US
and as required by the terms of the Treaty.
Under the Treaty, individuals who are residents of either the UK or the US
and who have been residents of the other jurisdiction (the US or the UK,
as the case may be) at any time during the six years immediately
preceding the relevant disposal of ordinary shares or ADSs may be subject
to tax with respect to capital gains arising from a disposition of ordinary
shares or ADSs of the company not only in the jurisdiction of which the
holder is resident at the time of the disposition but also in the other
jurisdiction.
US federal income taxation
A US holder who sells or otherwise disposes of ordinary shares or ADSs will
recognize a capital gain or loss for US federal income tax purposes equal to
the difference between the US dollar value of the amount realized and the
holder’s tax basis, determined in US dollars, in the ordinary shares or ADSs.
Any capital gain of a non-corporate US holder is taxed at a preferential rate if
the holder’s holding period for such ordinary shares or ADSs exceeds one
year. In the case of a non-corporate US holder whose taxable income does
not exceed $400,000 ($450,000 in the case of a joint filer), such gain will be
taxed at a maximum rate of 15%. Such gain recognized by a non-corporate
US holder whose income is above these dollar thresholds will be subject to
tax at a rate of 20%. These dollar thresholds will be adjusted for inflation for
tax years after 2013.
Gain or loss from the sale or other disposition of ordinary shares or ADSs
will generally be income or loss from sources within the US for foreign tax
credit limitation purposes. The deductibility of capital losses is subject to
limitations.
We do not believe that ordinary shares or ADSs will be treated as stock of
a passive foreign investment company, or PFIC, for US federal income tax
purposes, but this conclusion is a factual determination that is made
annually and thus is subject to change. If we are treated as a PFIC, unless
a US holder elects to be taxed annually on a mark-to-market basis with
respect to ordinary shares or ADSs, any gain realized on the sale or other
disposition of ordinary shares or ADSs would in general not be treated as
capital gain. Instead, a US holder would be treated as if he or she had
realized such gain rateably over the holding period for ordinary shares or
ADSs and would be taxed at the highest tax rate in effect for each such
year to which the gain was allocated, in addition to which an interest
charge in respect of the tax attributable to each such year would apply.
Certain ‘excess distributions’ would be similarly treated if we were treated
asaPFIC.
Additional tax considerations
Scrip Dividend Programme
The company has an optional Scrip Dividend Programme, wherein holders
of BP ordinary shares or ADSs may elect to receive any dividends in the
form of new fully-paid ordinary shares or ADSs of the company instead of
cash. Please consult your tax adviser for the consequences to you.
UK inheritance tax
The Estate Tax Convention applies to inheritance tax. ADSs held by an
individual who is domiciled for the purposes of the Estate Tax Convention
in the US and is not for the purposes of the Estate Tax Convention a
national of the UK will not be subject to UK inheritance tax on the
individual’s death or on transfer during the individual’s lifetime unless,
among other things, the ADSs are part of the business property of a
permanent establishment situated in the UK used for the performance of
independent personal services. In the exceptional case where ADSs are
subject to both inheritance tax and US federal gift or estate tax, the Estate
Tax Convention generally provides for tax payable in the US to be credited
against tax payable in the UK or for tax paid in the UK to be credited
against tax payable in the US, based on priority rules set forth in the
Estate Tax Convention.
UK stamp duty and stamp duty reserve tax
The statements below relate to what is understood to be the current
practice of HM Revenue & Customs in the UK under existing law.
Provided that any instrument of transfer is not executed in the UK and
remains at all times outside the UK and the transfer does not relate to any
matter or thing done or to be done in the UK, no UK stamp duty is payable
on the acquisition or transfer of ADSs. Neither will an agreement to
transfer ADSs in the form of ADRs give rise to a liability to stamp duty
reserve tax.
Purchases of ordinary shares, as opposed to ADSs, through the CREST
system of paperless share transfers will be subject to stamp duty reserve
tax at 0.5%. The charge will arise as soon as there is an agreement for the
transfer of the shares (or, in the case of a conditional agreement, when
the condition is fulfilled). The stamp duty reserve tax will apply to
agreements to transfer ordinary shares even if the agreement is made
outside the UK between two non-residents. Purchases of ordinary shares
outside the CREST system are subject either to stamp duty at a rate of
£5 per £1,000 (or part, unless the stamp duty is less than £5, when no
stamp duty is charged), or stamp duty reserve tax at 0.5%. Stamp duty
and stamp duty reserve tax are generally the liability of the purchaser.
A subsequent transfer of ordinary shares to the Depositary’s nominee will
give rise to further stamp duty at the rate of £1.50 per £100 (or part) or
stamp duty reserve tax at the rate of 1.5% of the value of the ordinary
shares at the time of the transfer. For ADR holders electing to receive
ADSs instead of cash, after the 2012 first quarter dividend payment
156 Shareholder information
BP Annual Report and Form 20-F 2012