HSBC 2003 Annual Report Download - page 370

HSBC HOLDINGS PLC
Taxation of Shares and Dividends (continued)
368
duty reserve tax at the rate of 0.5 per cent of the
consideration. However, provided an instrument of
transfer of the shares is executed pursuant to the
agreement and duly stamped before the date on
which the stamp duty reserve tax becomes payable,
under current UK Inland Revenue practice it will not
be necessary to pay the stamp duty reserve tax, nor to
apply for such tax to be cancelled. Stamp duty
reserve tax generally is payable by the transferee.
Paperless transfers of shares within CREST, the
United Kingdom’s paperless share transfer system,
are liable to stamp duty reserve tax at the rate of 0.5
per cent of the consideration. In CREST transactions,
the tax is calculated and payment made
automatically. Deposits of shares into CREST
generally will not be subject to stamp duty reserve
tax, unless the transfer into CREST is itself for
consideration.
Taxation – US residents
The following is a summary, under current law, of
the principal UK tax and US Federal tax
considerations that are likely to be material to the
ownership and disposition of shares or ADSs by a
holder that is a resident of the United States for the
purposes of the income tax convention between the
United States and the United Kingdom (the
‘Treaty’ ), and is fully eligible for benefits under the
Treaty (an ‘eligible US holder’ ). The summary does
not purport to be a comprehensive description of all
of the tax considerations that may be relevant to a
holder of shares or ADSs. In particular, the summary
deals only with eligible US holders that hold shares
or ADSs as capital assets, and does not address the
tax treatment of holders that are subject to special tax
rules, such as banks, tax-exempt entities, insurance
companies, dealers in securities or currencies,
persons that hold shares or ADSs as part of an
integrated investment (including a ‘straddle’ )
comprised of a share or ADS and one or more other
positions, and persons that own, directly or
indirectly, 10 per cent or more of the voting stock of
HSBC Holdings. This discussion is based on laws,
treaties, judicial decisions and regulatory
interpretations in effect on the date hereof, all of
which are subject to change. A new income tax
treaty (the ‘new Treaty’ ) between the United
Kingdom and the United States entered into effect on
1 May 2003 with respect to dividends superseding
the previous tax treaty (the ‘old Treaty’ ). Following
entry into effect of the new Treaty, eligible US
holders are no longer entitled to claim a special
foreign tax credit in respect of dividends that was
available under the terms of the old Treaty, except
for a limited period of time during which such
holders may elect to apply the old Treaty in its
entirety in preference to the new Treaty.
Holders and prospective purchasers should
consult their own advisers regarding the tax
consequences of an investment in shares or ADSs in
light of their particular circumstances, including the
effect of any national, state or local laws.
In general, the beneficial owner of a share or
ADS will be entitled to benefits under the new Treaty
(and, therefore, will be an eligible US holder) if it is
(i) an individual resident of the United States, a US
corporation meeting ownership criteria specified in
the new Treaty or other entity meeting criteria
specified in the new Treaty; and (ii) not also resident
in the United Kingdom for UK tax purposes. Special
rules, including a limitation of benefits provision,
may apply. The Treaty benefits discussed below
generally are not available to US holders that hold
shares or ADSs in connection with the conduct of a
business through a permanent establishment, or the
performance of personal services through a fixed
base, in the United Kingdom.
Taxation of dividends
A US holder must include cash dividends paid on the
shares or ADSs in ordinary income on the date that
such holder or the ADS depositary receive them,
translating dividends paid in UK pounds sterling into
US dollars using the exchange rate in effect on the
date of receipt. Qualified dividends paid before 2009
to individual US holders, may be subject to federal
tax at the 5 per cent or 15 per cent maximum tax rate
that applies to net capital gains. To qualify for the
5 per cent or 15 per cent maximum tax rate, the
dividends must have been paid by a qualified foreign
corporation and must be paid on shares that the
holder has held for more than 61 days during the
121-day period that begins 60 days before the ex-
dividend date. In addition, amongst other criteria,
dividends on any shares to the extent the holder is
obligated (under a short sale or otherwise) to make
related payments for positions in substantially
similar or related property are not qualified
dividends. A non-US corporation is a qualified
foreign corporation if it is eligible for the benefits of
a comprehensive income tax treaty with the United
States that the US Treasury Department has