HSBC 2006 Annual Report Download - page 444

HSBC HOLDINGS PLC
Shareholder Information (continued)
Taxation of shares and dividends / History and development
442
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 US for the purposes of
the income tax convention between the US and the
UK (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. Under the current
income tax treaty between the UK and the US,
eligible US holders are no longer entitled to claim a
special foreign tax credit in respect of dividends.
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 Treaty
(and, therefore, will be an eligible US holder) if it is
(i) an individual resident of the US, a US corporation
meeting ownership criteria specified in the Treaty or
other entity meeting criteria specified in the Treaty;
and (ii) not also resident in the UK 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 UK.
Taxation of dividends
An eligible 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
receives them, translating dividends paid in UK
pounds sterling into US dollars using the exchange
rate in effect on the date of receipt. Subject to certain
exceptions for positions that are held for less than 61
days or are hedged, and subject to a foreign
corporation being considered a ‘qualified foreign
corporation’ (which includes not being classified for
US federal income tax purposes as a passive foreign
investment company), certain dividends (‘qualified
dividends’) received by an individual eligible US
holder before 2009 generally will be subject to US
taxation at a maximum rate of 15 per cent. Based on
the company’s audited financial statements and
relevant market and shareholder data, HSBC
Holdings believes that it was not treated as a passive
foreign investment company for US federal income
tax purposes with respect to its 2005 or 2006 taxable
year. In addition, based on the company’s audited
financial statements and current expectations
regarding the value and nature of its assets, and the
sources and nature of its income, HSBC Holdings
does not anticipate being classified as a passive
foreign investment company for its 2007 taxable
year. Accordingly, dividends paid on the shares or
ADSs generally should be treated as qualified
dividends.
Taxation of capital gains
Gains realised by an eligible US holder on the sale or
other disposition of shares or ADSs normally will
not be subject to UK taxation unless at the time of
the sale or other disposition the holder carries on a
trade, profession or vocation in the UK through a
branch or agency or permanent establishment and
the shares or ADSs are or have been used, held or
acquired for the purposes of such trade, profession,
vocation, branch or agency or permanent
establishment. Such gains will be included in income
for US tax purposes, and will be long-term capital
gains if the shares or ADSs were held for more than
one year. A long-term capital gain realised by an
individual holder generally is subject to US tax at a
maximum rate of 15 per cent.
Stamp duty and stamp duty reserve tax –
ADSs
If shares are transferred into a clearance service or
depository receipt (‘ADR’) arrangement (which will
include a transfer of shares to the Depository) UK
stamp duty and/or stamp duty reserve tax will be
payable. The stamp duty or stamp duty reserve tax is
generally payable on the consideration for the
transfer and is payable at the aggregate rate of
1.5 per cent.
The amount of stamp duty reserve tax payable
on such a transfer will be reduced by any stamp duty
paid in connection with the same transfer.
No stamp duty will be payable on the transfer
of, or agreement to transfer, an ADS, provided that