BT 2009 Annual Report Download - page 158

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
ADDITIONAL INFORMATION INFORMATION FOR SHAREHOLDERS
156 BT GROUP PLC ANNUAL REPORT & FORM 20-F
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, banks, regulated investment companies, financial
institutions, securities broker-dealers, traders in securities who elect a mark-to-market method of accounting, persons subject to alternative
minimum tax, investors that directly, indirectly or by attribution own 10% or more of the outstanding share capital or voting power of BT,
persons holding their ordinary shares or ADSs as part of a straddle, hedging transaction or conversion transaction, persons who acquired
their ordinary shares or ADSs pursuant to the exercise of options 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 the purposes of this summary, a US Holder is a beneficial owner of ordinary shares or ADSs that, for US federal income tax purposes,
is: a citizen or individual resident of the United States, a corporation (or other entity taxable as a corporation for US federal income tax
purposes) created or organised in or under the laws of the United States or any political subdivision thereof, an estate the income of which
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 United States persons are authorised to control all substantial decisions of the trust. If a
partnership holds ordinary shares or ADSs, the US tax treatment of a partner generally will depend upon the status of the partner and the
activities of the partnership. A partner in a partnership that holds ordinary shares or ADSs is urged to consult its own tax advisor 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 the practice of Her Majesty’s Revenue & Customs (HMRC) and US law
and US Internal Revenue Service (IRS) practice, including the Internal Revenue Code of 1986, as amended, existing and proposed Treasury
regulations, rulings, judicial decisions and administrative practice, all as currently in effect and available, (ii) the United Kingdom–United
States Convention relating to estate and gift taxes, and (iii) the United Kingdom–United States Tax Convention that entered into force on
31 March 2003 and the protocol thereto (the Convention), all 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 consult their own tax advisors as to the applicability of the Convention 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
Under current UK tax law, BT will not be required to withhold tax at source from dividend payments it makes. Unless a US Holder of
ordinary shares or ADSs is resident in or ordinarily resident for United Kingdom tax purposes in the United Kingdom or unless a US holder
of ordinary shares or ADSs carries on a trade, profession or vocation in the United Kingdom through a branch or agency, or, in the case of a
company, a permanent establishment in the UK, the holder should not be liable for UK tax on dividends received in respect of ordinary
shares and/or ADSs.
For US federal income tax purposes, a distribution will be treated as ordinary dividend income. The amount of the distribution includible
in gross income of a US Holder will be the US dollar value of the distribution calculated by reference to the spot rate in effect on the date
the distribution is actually or constructively received by a US Holder of ordinary shares, or by the Depositary, in the case of ADSs. A US
Holder who converts the British pounds into US dollars on the date of receipt generally should not recognise any exchange gain or loss. A
US Holder who does not convert the British pounds into US dollars on the date of receipt generally will have a tax basis in the British
pounds equal to their US dollar value on such date. Foreign currency gain or loss, if any, recognised by the US Holder on a subsequent
conversion or other disposition of the British pounds generally will be US source ordinary income or loss. Dividends paid by BT to a US
Holder will not be eligible for the US dividends received deduction that may otherwise be available to corporate shareholders.
For purposes of calculating the foreign tax credit limitation, dividends paid on the ordinary shares or ADSs will be treated as income from
sources outside the United States and generally will constitute ‘passive income’. The rules relating to the determination of the foreign tax
credit are very complex. US Holders who do not elect to claim a credit with respect to any foreign taxes paid in a given taxable year may
instead claim a deduction for foreign taxes paid. A deduction does not reduce US federal income tax on a dollar for dollar basis like a tax
credit. The deduction, however, is not subject to the limitations applicable to foreign credits.
There will be no right to any UK tax credit or to any payment from HMRC in respect of any tax credit on dividends paid on ordinary
shares or ADSs.
Certain US Holders (including individuals) are eligible for reduced rates of US federal income tax (currently at a maximum rate of 15%) in
respect of ‘qualified dividend income’ received in taxable years beginning before 1 January 2011. For this purpose, qualified dividend
income generally includes dividends paid by a non-US corporation if, among other things, the US Holders meet certain minimum holding
periods and the non-US corporation satisfies certain requirements, including that either (i) the shares or ADSs with respect to which the
dividend has been paid are readily tradeable on an established securities market in the United States, or (ii) the non-US corporation is
eligible for the benefits of a comprehensive US income tax treaty (such as the Convention) which provides for the exchange of information.
BT currently believes that dividends paid with respect to its ordinary shares and ADSs should constitute qualified dividend income for US
federal income tax purposes. Each individual US Holder of ordinary shares or ADSs is urged to consult his own tax advisor regarding the
availability to him of the reduced dividend tax rate in light of his own particular situation and regarding the computations of his foreign tax
credit limitation with respect to any qualified dividend income paid by BT to him, as applicable.
ADDITIONAL INFORMATION