HSBC 2009 Annual Report Download - page 483

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Inheritance tax
Shares or ADSs held by an individual whose
domicile is determined to be the US for the purposes
of the United States-United Kingdom Double
Taxation Convention relating to estate and gift taxes
(the ‘Estate Tax Treaty’) and who is not for such
purposes a national of the UK will not, provided any
US Federal estate or gift tax chargeable has been
paid, be subject to UK inheritance tax on the
individual’s death or on a lifetime transfer of shares
or ADSs except in certain cases where the shares or
ADSs (i) are comprised in a settlement (unless, at the
time of the settlement, the settlor was domiciled in
the US and was not a national of the UK), (ii) is
part of the business property of a UK permanent
establishment of an enterprise, or (iii) pertains to
a UK fixed base of an individual used for the
performance of independent personal services. In
such cases, the Estate Tax Treaty generally provides
a credit against US Federal tax liability for the
amount of any tax paid in the UK in a case where the
shares or ADSs are subject to both UK inheritance
tax and to US Federal estate or gift tax.
Stamp duty and stamp duty reserve tax
Transfers of shares by a written instrument of
transfer generally will be subject to UK stamp duty
at the rate of 0.5 per cent of the consideration paid
for the transfer, and such stamp duty is generally
payable by the transferee.
An agreement to transfer shares, or any interest
therein, normally will give rise to a charge to stamp
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 the current practice of UK HM Revenue and
Customs 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 is generally
payable by the transferee.
Paperless transfers of shares within CREST, the
UK’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. Following the
case pursued by HSBC before the European Court of
Justice (Case C-569/07 HSBC Holdings plc and
Vidacos Nominees v The Commissioners for HM
Revenue & Customs) HMRC now accepts that the
charge to SDRT at 1.5 per cent on the issue of shares
to a depositary receipt issuer or a clearance service
located within the European Union is prohibited.
HMRC has invited claims from individuals for
repayment for any such tax paid in the last six years.
Taxation – US residents
The following is a summary, under current law, of
the principal UK tax and US federal income 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 US for US federal
income tax purposes (a ‘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 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,
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.
Any US federal tax advice included in this
Annual Report is for informational purposes only;
it was not intended or written to be used, and cannot
be used, for the purpose of avoiding US federal tax
penalties.
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 receives them,
translating dividends paid in UK pounds sterling into
US dollars using the exchange rate in effect on the
date of receipt. A US holder that elects to receive
shares in lieu of a cash dividend must include in