BT 2013 Annual Report Download - page 189

Additional information
187
Additional information
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 UK tax purposes in the UK or unless a US Holder of ordinary shares or ADSs carries on a trade,
profession or vocation in the UK 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 Sterling
into US Dollars on the date of receipt generally should not recognise any exchange gain or loss. A US Holder who does not convert Sterling into US
Dollars on the date of receipt generally will have a tax basis in Sterling 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 Sterling 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 US 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 2013. 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 US, 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.
Taxation of capital gains
Unless a US Holder of ordinary shares or ADSs is resident in or ordinarily resident for UK tax purposes in the UK or unless a US Holder of ordinary
shares or ADSs carries on a trade, profession, or vocation in the UK through a branch, agency, or in the case of a company, a permanent
establishment in the UK, and the ordinary shares and/or ADSs have been used, held, or acquired for the purposes of that trade, profession or
vocation the holder should not be liable for UK tax on capital gains on a disposal of ordinary shares and/or ADSs.
A US Holder who is an individual and who has ceased to be resident or ordinarily resident for tax purposes in the UK on or after 17 March 1998 or
who falls to be regarded as resident outside the UK for the purposes of any double tax treaty (Treaty non-resident) on or after 16 March 2005 and
continues to not be resident or ordinarily resident in the UK or continues to be Treaty non-resident for a period of less than five years of assessment
and who disposes of his ordinary shares or ADSs during that period may also be liable on his return to the UK to UK tax on capital gains, subject to
any available exemption or relief, even though he is not resident or ordinarily resident in the UK or is Treaty non-resident at the time of disposal.
For US federal income tax purposes, a US Holder generally will recognise capital gain or loss on the sale, exchange or other disposition of ordinary
shares or ADSs in an amount equal to the difference between the US Dollar value of the amount realised on the disposition and the US Holder’s
adjusted tax basis (determined in US Dollars) in the ordinary shares or ADSs. Such gain or loss generally will be US source gain or loss, and will be
treated as long-term capital gain or loss if the ordinary shares have been held for more than one year at the time of disposition. Long-term capital
gains recognised by an individual US Holder generally are subject to US federal income tax at preferential rates. The deductibility of capital losses is
subject to significant limitations.
A US Holder’s tax basis in an ordinary share will generally be its US Dollar cost. The US Dollar cost of an ordinary share purchased with foreign
currency will generally be the US Dollar value of the purchase price on the date of purchase, or the settlement date for the purchase, in the case of
ordinary shares traded on an established securities market, as defined in the applicable Treasury Regulations, that are purchased by a cash basis US
Holder (or an accrual basis US Holder that so elects). Such an election by an accrual basis US Holder must be applied consistently from year to year
and cannot be revoked without the consent of the IRS. The amount realised on a sale or other disposition of ordinary shares for an amount in
foreign currency will be the US Dollar value of this amount on the date of sale or disposition. On the settlement date, the US Holder will recognise
US source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the US Dollar value of the
amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date. However, in the case of
ordinary shares traded on an established securities market that are sold by a cash basis US Holder (or an accrual basis US Holder that so elects), the
amount realised will be based on the exchange rate in effect on the settlement date for the sale, and no exchange gain or loss will be recognised at
that time.