Holiday Inn 2014 Annual Report Download - page 174

capital to the extent of the US holder’s basis in the shares or ADSs
and thereafter as capital gain. Because the Company has not
historically maintained, and does not currently maintain, books in
accordance with US tax principles, the Company does not expect
to be in a position to determine whether any distribution will be in
excess of the Company’s current and accumulated earnings and
profits as computed for US federal income tax purposes. As a
result, it is expected that amounts distributed will be reported
to the Internal Revenue Service (IRS) as dividends.
Subject to applicable limitations and the discussion above regarding
concerns expressed by the US Treasury, dividends paid to certain
non-corporate US holders will be taxable at the preferential rates
applicable to long-term capital gain if the dividends constitute
“qualified dividend income”. The Company expects that dividends
paid by the Company with respect to the ADSs will constitute
qualified dividend income. US holders should consult their own tax
advisors to determine whether they are subject to any special rules
that limit their ability to be taxed at these preferential rates.
Dividends must be included in income when the US holder, in the
case of shares, or the ADR Depositary, in the case of ADSs, actually
or constructively receives the dividend, and will not be eligible
for the dividends-received deduction generally allowed to US
corporations in respect of dividends received from other US
corporations. For foreign tax credit limitation purposes, dividends
will generally be income from sources outside the US.
The amount of any dividend paid in pounds sterling will be the
US dollar value of the sterling payments made, determined at the
spot sterling/US dollar rate on the date the dividend distribution
is includible in income, regardless of whether the payment is in
fact converted into US dollars. If the dividend is converted into
US dollars on that date, a US holder should not be required to
recognise foreign currency gain or loss in respect of the dividend
income. Generally, any gain or loss resulting from currency
exchange fluctuations during the period from the date the
dividend payment is includible in income to the date the payment
is converted into US dollars will be treated as ordinary income
or loss, from sources within the US.
Taxation of capital gains
UK taxation
A US holder who is not resident for UK tax purposes in the UK
and who is not trading in the UK will not generally be liable for UK
taxation on capital gains, or eligible for relief for allowable losses,
realised or accrued on the sale or other disposal of ADSs or
ordinary shares. A US holder of ADSs or ordinary shares who is an
individual and who, broadly, has temporarily ceased to be resident
in the UK or has become temporarily treated as non-resident for
UK tax purposes for a period of not more than five years (or, for
departures before 6 April 2013, ceases to be resident or ordinarily
resident or becomes treated as non-resident for less than five
years of assessment) and who disposes of ordinary shares or
ADSs during that period may, for the year of assessment when
that individual becomes resident again in the UK, be liable to UK
tax on capital gains (subject to any available exemption or relief),
notwithstanding the fact that such US holder was not treated as
resident in the UK at the time of the sale or other disposal.
US federal income taxation
A US holder who sells or otherwise disposes of ordinary shares or
ADSs will recognise a capital gain or loss for US federal income tax
purposes equal to the difference between the amount realised and
its tax basis in the ordinary shares or ADSs, each determined in US
dollars. Such capital gain or loss will be long-term capital gain or
loss where the US holder has a holding period greater than one
year. Losses may also be treated as long-term capital losses to the
extent of certain “extraordinary dividends” that qualified for the
preferential tax rates on qualified dividend income described above.
The capital gain or loss will generally be income or loss from
sources within the US for foreign tax credit limitation purposes.
The deductibility of capital losses is subject to limitations.
PFIC rules
The Company believes that it was not a PFIC for US federal income
tax purposes for its 2014 taxable year. However, this conclusion
is an annual factual determination and thus may be subject to
change. If the Company were to be treated as a PFIC, gain realised
on the sale or other disposition of ordinary shares or ADSs would,
in general, not be treated as capital gain. Instead, gain would be
treated as if the US holder had realised such gain rateably over
the holding period for the ordinary shares or ADSs and, to the
extent allocated to the taxable year of the sale or other exchange
and to any year before the Company became a PFIC, would be
taxed as ordinary income. The amount allocated to each other
taxable year would be taxed at the highest tax rate in effect for
each such year to which the gain was allocated, together with an
interest charge in respect of the tax attributable to each such year.
In addition, similar rules would apply to any “excess distribution”
received on the ordinary shares or ADSs (generally, the excess
of any distribution received on the ordinary shares or ADSs
during the taxable year over 125 per cent of the average amount
of distributions received during a specified prior period), and the
preferential rates for qualified dividend income received by certain
non-corporate US holders would not apply.
Certain elections may be available (including a market-to-market
election) to US holders that would result in alternative treatments
of the ordinary shares or ADSs. If the Company were to be treated
as a PFIC in any taxable year in which a US holder held ordinary
shares or ADSs, a US holder will generally be required to file
IRS Form 8621 with their annual US federal income tax returns,
subject to certain exceptions.
Additional tax considerations
UK inheritance tax
An individual who is neither domiciled nor deemed domiciled in
the UK (under certain UK rules relating to previous domicile or
long residence) is only chargeable to UK inheritance tax to the extent
the individual owns assets situated in the UK. As a matter of UK law,
it is not clear whether the situs of an ADS for UK inheritance tax
purposes is determined by the place where the depositary is
established and records the entitlements of the deposit holders,
or by the situs of the underlying share which the ADS represents,
but the UK tax authorities may take the view that the ADSs, as well
as the ordinary shares, are or represent UK situs assets.
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IHG Annual Report and Form 20-F 2014
Shareholder information continued