BT 2003 Annual Report Download - page 153

BT has entered into a number of ongoing commercial agreements with AT&T in order to allow it to continue its
global operations, and offer telecommunication services, in various geographic regions where BT may no longer
have infrastructure as a result of the transfer of certain assets to AT&T.
In connection with the termination of the Concert joint venture, AT&T has acquired BT’s minority interest
in AT&T Canada and BT no longer has any interest or obligation in relation to AT&T Canada.
Cegetel
On 5 December 2002, Vivendi Universal (‘‘Vivendi’’) served a notice exercising its pre-emption rights under
the Shareholders’ Agreement in respect of Cegetel Groupe SA (‘‘Cegetel’’) to acquire BT’s entire shareholding –
a 26% interest – in Cegetel from Cegetel Holdings I BV Sarl (‘‘Cegetel Holdings’’), a BT group company for
e4.0 billion (£2.6 billion) in cash. This pre-emption right became exercisable as a result of Cegetel Holdings
having entered into a share purchase agreement for the sale of its shareholding in Cegetel to Vodafone AG for
e4.0 billion in cash, in October 2002.
Vivendi paid e2.7 billion of the consideration to Cegetel Holdings on 17 January 2003 and the transaction
was completed when Vivendi paid the balance of e1.3 billion on 22 January 2003.
Taxation (US Holders)
This is a summary only of the principal US federal income tax and UK tax consequences of the ownership and
disposition of ordinary shares or ADSs by US Holders (as defined below) who hold their ordinary shares or ADSs
as capital assets. It does not address all aspects of US federal income taxation and does not address aspects
that may be relevant to persons who are subject to special provisions of US federal income tax law, including
US expatriates, insurance companies, tax-exempt organisations, financial institutions, securities broker-dealers,
persons subject to alternative minimum tax, investors that actually or constructively own 10% or more of our
outstanding share capital, persons holding their shares or ADSs as part of a straddle, hedging transaction or
conversion transaction, persons who acquired their shares or ADSs pursuant to the exercise of options or similar
derivative securities or otherwise as compensation, or persons whose functional currency is not the US dollar,
amongst others. Those holders may be subject to US federal income tax consequences different from those set
forth below.
For purposes of this summary, a ‘‘US Holder’’ is a beneficial owner of ordinary shares or ADSs that, for US
federal income tax purposes, is: an individual citizen or resident of the United States, a corporation or certain
other entities created or organised in or under the laws of the United States or any state thereof, an estate whose
income is subject to US federal income taxation regardless of its source, or a trust if a US court can exercise
primary supervision over the administration of the trust and one or more US persons are authorised to control all
substantial decisions of the trust. If a partnership holds ordinary shares or ADSs, the tax treatment of a partner
generally will depend upon the status of the partner and the activities of the partnership. If a US Holder is a
partner in a partnership that holds ordinary shares or ADSs, such Holder is urged to consult its own tax adviser
regarding the specific tax consequences of owning and disposing of the ordinary shares or ADSs.
In particular, this summary is based on (i) current UK tax law and UK Inland Revenue practice and US law and
US Internal Revenue Service (‘‘IRS’’) practice, including the Internal Revenue Code of 1986, as amended
(the ‘‘Code’’), Treasury regulations, rulings, judicial decisions and administrative practice, all as currently in
effect, (ii) the United Kingdom–United States Income Tax Convention that entered into force on 25 April 1980 as
in effect on 1 January 2003 (the ‘‘1980 Convention’’), and (iii) the United Kingdom–United States Convention
relating to estate and gift taxes as in effect on the date of this Annual Report, all of which are subject to change
or changes in interpretation, possibly with retroactive effect.
US Holders should be aware that a new United Kingdom–United States Income Tax Convention entered into
force on 31 March 2003 (the ‘‘New Convention’’) and generally will have effect in respect of dividends paid on or
after 1 May 2003. However, a US Holder entitled to benefits under the 1980 Convention may elect to have
the provisions of the 1980 Convention continue for an additional twelve months if the election to apply the 1980
Convention would result in greater benefits to the Holder. If a US Holder were to make an effective election,
the discussion below with respect to dividend payments made pursuant to the 1980 Convention would continue
to apply to dividends paid by BT prior to 1 May 2004. The discussion below notes instances where the relevant
provisions of the New Convention will produce a materially different result for a US Holder. US Holders should
note that certain articles in the New Convention limit or restrict the ability of a US Holder to claim benefits under
the New Convention and that similar provisions were not contained in the 1980 Convention.
US Holders should consult their own tax advisors as to the applicability of the Conventions and the
consequences under UK, US federal, state and local, and other laws, of the ownership and disposition of ordinary
shares or ADSs.
Taxation of dividends
For dividends paid on or before 5 April 1999, US Holders were generally entitled to receive the cash dividend plus
a Treaty payment from the Inland Revenue of one quarter of the dividend, subject to a UK withholding tax of 15%
of the aggregate amount paid. As an example for illustration purposes only, a US Holder who was entitled
to a dividend of £80 was also entitled to a Treaty payment of £20, reduced by the withholding tax of 15% on
Additional information for shareholders
152 BT Annual Report and Form 20-F 2003