National Grid 2008 Annual Report Download - page 19

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 48969
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: 20-F, Doc: 1, Page: 13
6/5013.00.00.00Y59930BNY
[A/E] EDGAR 2 *Y59930/013/5*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 48969
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: 20-F, Doc: 1, Page: 13
6/5013.00.00.00Y59930BNY
[A/E] EDGAR 2 *Y59930/013/5*
Table of Contents
For the purposes of this discussion, the term ‘US Holder’ refers to a beneficial owner of ADSs or ordinary
shares who is a resident of the United States for US federal income tax purposes and, as to the description under
‘Taxation of dividends’ and ‘Taxation of capital gains’ below, is also a resident of the United States for the purposes
of the Income Tax Convention.
The statements regarding UK tax set out below are based on UK tax law and the published practice of HM
Revenue and Customs in the United Kingdom as at the date of this document and are subject to any change therein
(including any change having retroactive effect).
Taxation of Dividends
Under the Income Tax Convention the United Kingdom is allowed to impose a 15% withholding tax on
dividends paid to US shareholders controlling less than 10% of the voting capital of National Grid. The United
Kingdom does not, however, currently impose a withholding tax on such dividends. If it were to impose such a tax,
the treaty provides for an exemption from withholding taxes for dividends paid on shares held through a tax exempt
pension fund, 401(k) plan or similar ‘pension scheme’ as defined in the Income Tax Convention. The Income Tax
Convention does not provide for refunds to be paid in respect of tax credits arising on dividends paid by UK resident
companies. To obtain benefits under the Income Tax Convention, a US holder must otherwise satisfy the
requirements of the limitations on benefits article of the Income Tax Convention.
Cash distributions received by a US Holder with respect to its ADSs or ordinary shares generally will be treated
as a dividend subject to US federal income taxation as ordinary income. Subject to certain exceptions for short-term
and hedged positions, the US dollar amount of dividends received by certain non-corporate US Holders with respect
to ADSs or ordinary shares before January 1, 2011 will be subject to taxation at a maximum rate of 15% if the
dividends are “qualified dividends.” Dividends received with respect to ADSs or ordinary shares will be qualified
dividends if National Grid (i) is eligible for the benefits of a comprehensive income tax treaty with the United States
that the US Internal Revenue Service (“IRS”) has approved for purposes of the qualified dividend rules and (ii) was
not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid,
a passive foreign investment company (“PFIC”). The Income Tax Convention has been approved for purposes of the
qualified dividend rules. Based on National Grid’s audited financial statements and relevant market and shareholder
data, National Grid believes that it was not treated as a PFIC for US federal income tax purposes with respect to its
2007 taxable year. In addition, based on its audited financial statements and its current expectations regarding the
value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data,
National Grid does not anticipate becoming a PFIC for its 2008 taxable year or in the foreseeable future. Dividends
paid by National Grid to corporate US holders will not be eligible for the dividends received deduction generally
allowed to corporations. This discussion is based on current law and previous guidance issued by the IRS which
could be changed.
Taxation of Capital Gains
Subject to the provisions set out in the next paragraph in relation to temporary non-residents, a US Holder who
is not resident and not ordinarily resident in the UK for UK tax purposes is not liable for UK taxation on capital gains
realized or accrued on the sale or other disposal of ADSs or ordinary shares. A US Holder is, however, liable for US
federal income tax on such gains to the same extent as on any other gains from sales of stock. The gain, if any, is
generally US source.
The following taxpayers may be subject to tax in both jurisdictions for any capital gain realized on the sale or
other disposition of ADSs or ordinary shares:
10
• a US citizen who is resident or ordinarily resident in the UK
• a US corporation which is resident in the UK by reason of its business being managed and controlled in the
UK
• a US citizen who is trading or carrying on a profession or vocation in the UK and used, held or acquired ADSs
or ordinary shares for the purpose of such trade, profession or vocation