HSBC 2015 Annual Report Download - page 478

Shareholder information (continued)
Taxation of shares and dividends
HSBC HOLDINGS PLC
476
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 HSBC pursued before
the European Court of Justice (Case C-569/07 HSBC Holdings
plc and Vidacos Nominees Ltd v The Commissioners for HM
Revenue & Customs) and a subsequent case in relation to
depositary receipts, HMRC now accepts that the charge to
stamp duty reserve tax at 1.5% on the issue of shares to a
depositary receipt issuer or a clearance service is prohibited.
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 American Depositary Shares (‘ADS’s)
by a holder that is a resident of the US for US federal income
tax purposes (a ‘US holder’) and who is not resident in the
UK for UK tax purposes.
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% 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.
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 and
Accounts 2015 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
Currently no tax is withheld from dividends paid by HSBC
Holdings. For US tax purposes, 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 ordinary income the fair
market value of such shares on the dividend payment date,
and the tax basis of those shares will equal such fair market
value.
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 US
holder generally will be subject to US taxation at preferential
rates. Based on the company’s audited financial statements
and relevant market and shareholder data, HSBC Holdings
does not anticipate being classified as a passive foreign
investment company. Accordingly, dividends paid on the
shares or ADSs generally should be treated as qualified
dividends.
Taxation of capital gains
Gains realised by a 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 US holder generally will be subject to US tax at
preferential rates.
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) are part of the business property of a UK permanent
establishment of an enterprise, or (iii) pertain 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 – ADSs
If shares are transferred to a clearance service or American
Depositary Receipt (‘ADR’) issuer (which will include a
transfer of shares to the Depositary) under the current
HMRC practice 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%.
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 the ADR and
any separate instrument of transfer or written agreement to
transfer remain at all times outside the UK, and provided
further that any such transfer or written agreement to
transfer is not executed in the UK. No stamp duty reserve