Vodafone 2003 Annual Report Download - page 145

Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 143
Generally, the New Treaty is effective in respect of taxes withheld at source if an
amount is paid or credited on or after 1 May 2003. Other provisions of the New
Treaty, however, took effect for UK purposes for individuals on 6 April 2003
(1 April 2003 for UK companies) and will take effect for US purposes on 1
January 2004. The rules of the Old Treaty remain applicable until these effective
dates. However, a taxpayer may elect to have the Old Treaty apply in its entirety
for a period of twelve months after the applicable effective dates of the New
Treaty.
This section is further based in part upon the representations of the Depositary
and assumes that each obligation in the Deposit Agreement and any related
agreement will be performed in accordance with its terms.
For US federal income tax and UK tax purposes, a holder of ADRs evidencing
ADSs will be treated as the owner of the shares in the Company represented by
those ADSs. Generally, exchanges of shares for ADRs, and ADRs for shares, will
not be subject to US federal income tax or to UK tax, other than stamp duty or
stamp duty reserve tax (see the section on these taxes below).
Taxation of dividends
UK taxation
Under current UK tax law, no withholding tax will be deducted from dividends
paid by the Company.
A shareholder that is a company resident for UK tax purposes in the United
Kingdom will not be taxable on a dividend it receives from the Company. A
shareholder in the Company who is an individual resident for UK tax purposes in
the United Kingdom is entitled, in calculating their liability to UK income tax, to a
tax credit on cash dividends paid on shares in the Company or ADSs, and the tax
credit is equal to one-ninth of the cash dividend.
Under the Old Treaty, a US holder is entitled to a tax credit from the UK Inland
Revenue equal to the amount of the tax credit available to a shareholder resident
in the United Kingdom (i.e. one-ninth of the dividend received), but the amount of
the dividend plus the amount of the tax credit are then subject to withholding in
an amount equal to the amount of the tax credit. A US holder therefore will not,
in fact, receive any repayment from the UK Inland Revenue in respect of a
dividend from the Company, although assuming the US holder is not resident in
the United Kingdom for UK tax purposes, there will be no further UK tax to pay in
respect of that dividend.
Under the New Treaty, a US holder will not be entitled to a tax credit from the UK
Inland Revenue in the manner described above, and dividends received by the
US holder from the Company will not be subject to any withholding by the United
Kingdom under the New Treaty or otherwise.
US federal income taxation
The gross amount of any dividend paid by the Company to a US holder is subject
to United States federal income taxation. Dividends paid to a non-corporate US
holder after 31 December 2002 and before 1 January 2009 that constitute
qualified dividend income will be taxable to the holder at a maximum tax rate of
15% provided that the shares or ADSs are held for more than 60 days during the
120 day period beginning 60 days before the ex-dividend date and the holder
meets other holding period requirements. Dividends paid with respect to the
shares or ADSs will be qualified dividend income. The dividend is taxable to the
US holder when the US holder, in the case of shares, or the Depositary, in the
case of ADSs, actually or constructively receives the dividend.
A US holder, eligible for the benefits of the Old Treaty, may include in the gross
amount of income the UK tax withheld from the dividend payment pursuant to
the Old Treaty, as described in “UK taxation”above. Subject to certain limitations,
the UK tax withheld in accordance with the Old Treaty and effectively paid over to
the UK Inland Revenue will be creditable against the US holder’s US federal
income tax liability, provided the US holder is eligible for the benefits of the Old
Treaty and has properly filed Internal Revenue Form 8833. In addition, special
rules apply in determining the foreign tax credit limitation with respect to
dividends that are subject to the maximum 15% tax rate.
Under the New Treaty, a US holder will not be entitled to a UK tax credit payment,
but will also not be subject to a UK withholding tax. The US holder will include in
gross income for US federal income tax purposes only the amount of the
dividend actually received from the Company, and the receipt of a dividend will
not entitle the US holder to a foreign tax credit.
Dividends will not be eligible for the dividends-received deduction generally
allowed to US corporations in respect of dividends received from other US
corporations. Dividends will be income from sources outside the United States,
and will generally be “passive income”or “financial services income”, which is
treated separately from other types of income for the purposes of computing any
allowable foreign tax credit.
In the case of shares, the amount of the dividend distribution to be included in
income will be the US dollar value of the pound sterling payments made,
determined at the spot pound sterling/US dollar rate on the date of the dividend
distribution, regardless of whether the payment is in fact converted into US
dollars. Generally, any gain or loss resulting from currency exchange fluctuations
during the period from the date the dividend payment is to be included in income
to the date the payment is converted into US dollars will be treated as ordinary
income or loss and will not be eligible for the special tax rate applicable to
qualified dividend income. Generally, the gain or loss will be income or loss from
sources within the United States for foreign tax credit limitation purposes.
Taxation of capital gains
UK taxation
A US holder may be liable for both UK and US tax in respect of a gain on the
disposal of the Company’s shares or ADSs if the US holder is:
(i) a citizen of the United States resident or ordinarily resident for UK tax
purposes in the United Kingdom;
(ii) a US domestic corporation resident in the United Kingdom by reason of
being centrally managed and controlled in the United Kingdom; or
(iii) a citizen of the United States or a corporation that carries on a trade,
profession or vocation in the United Kingdom through a branch or
agency or, in respect of companies for accounting periods beginning on
or after 1 January 2003, through a permanent establishment, and that
has used the shares or ADSs for the purposes of such trade, profession
or vocation or has used, held or acquired the shares or ADSs for the
purposes of such branch or agency or permanent establishment.
However, subject to applicable limitations and provisions of the Old Treaty, such
persons may be entitled to a tax credit against their US federal income tax
liability for the amount of UK capital gains tax or UK corporation tax on
chargeable gains (as the case may be) which is paid in respect of such gain.
Under the New Treaty, capital gains on dispositions of the shares or ADSs will
generally be subject to tax only in the country of residence of the relevant holder
as determined under both the laws of the United Kingdom and the United States
and as required by the terms of the New Treaty. However, individuals who are
residents of either the United Kingdom or the United States and who have been
residents of the other jurisdiction (the US or the UK, as the case may be) at any