Vodafone 2005 Annual Report Download - page 149

Shareholder information |147
“UK Taxation”. 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.
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 is not entitled to a UK tax credit payment, but is also not
subject to a UK withholding tax. The US holder includes 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 does not entitle the US holder to a foreign tax credit.
In either case, dividends must be included in income when the US holder, in the case of
shares, or the 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.
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. 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 citizen of the United States who has been resident or ordinarily resident for UK tax
purposes in the United Kingdom, ceased to be so resident or ordinarily resident for
a period of less than 5 years of assessment and who disposed of the shares or
ADSs during that period (a “Temporary Non-Resident”), unless the shares or ADSs
were also acquired during that period, such liability arising on that individual’s
return to the UK;
(iii) a US domestic corporation resident in the United Kingdom by reason of being
centrally managed and controlled in the United Kingdom; or
(iv) 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 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 eligibility to the 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 are generally
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 time during the six years
immediately preceding the relevant disposal of shares or ADSs may be subject to tax
with respect to capital gains arising from the dispositions of the shares or ADSs not
only in the country of which the holder is resident at the time of the disposition, but
also in that other country (although, in respect of UK taxation, generally only to the
extent that such an individual comprises a Temporary Non-Resident).
US federal income taxation
A US holder that sells or otherwise disposes of the Company’s shares or ADSs will
recognise a capital gain or loss for US federal income tax purposes equal to the
difference between the US dollar value of the amount realised and the holder’s tax basis,
determined in US dollars, in the shares or ADSs. Generally, capital gain of a non-
corporate US holder that is recognised before 1 January 2009 is taxed at a maximum
rate of 15%, provided the holder has a holding period of more than one year. The gain
or loss will generally be income or loss from sources within the United States for foreign
tax credit limitation purposes. The deductibility of losses is subject to limitations.
Additional tax considerations
UK inheritance tax
An individual who is domiciled in the United States (for the purposes of the Estate Tax
Convention) and is not a UK national will not be subject to UK inheritance tax in respect
of the Company’s shares or ADSs on the individual’s death or on a transfer of the
shares or ADSs during the individual’s lifetime, provided that any applicable US federal
gift or estate tax is paid, unless the shares or ADSs are part of the business property of
a UK permanent establishment or pertain to a UK fixed base used for the performance
of independent personal services. Where the shares or ADSs have been placed in trust
by a settlor, they may be subject to UK inheritance tax unless, when the trust was
created, the settlor was domiciled in the United States and was not a UK national.
Where the shares or ADSs are subject to both UK inheritance tax and to US federal gift
or estate tax, the Estate and Gift Tax Convention generally provides a credit against US
federal tax liabilities for UK inheritance tax paid.
UK stamp duty and stamp duty reserve tax
Stamp duty will, subject to certain exceptions, be payable on any instrument
transferring shares in the Company to the Custodian of the Depositary at the rate of
1.5% on the amount or value of the consideration if on sale or on the value of such
shares if not on sale. Stamp duty reserve tax (SDRT), at the rate of 1.5% of the price
or value of the shares, could also be payable in these circumstances, and on issue to
such a person, but no SDRT will be payable if stamp duty equal to such SDRT liability is
paid. In accordance with the terms of the Deposit Agreement, any tax or duty payable
on deposits of shares by the Depositary or the Custodian of the Depositary will be
charged to the party to whom ADSs are delivered against such deposits.
No stamp duty will be payable on any transfer of ADSs of the Company, provided that
the ADSs and any separate instrument of transfer are executed and retained at all
times outside the United Kingdom.
A transfer of shares in the Company in registered form will attract ad valorem stamp
duty generally at the rate of 0.5% of the purchase price of the shares. There is no
charge to ad valorem stamp duty on gifts. On a transfer from nominee to beneficial
owner (the nominee having at all times held the shares on behalf of the transferee)
under which no beneficial interest passes and which is neither a sale nor in
contemplation of a sale, a fixed £5.00 stamp duty will be payable.
SDRT is generally payable on an unconditional agreement to transfer shares in the
Company in registered form at 0.5% of the amount or value of the consideration for
the transfer, but is repayable if, within six years of the date of the agreement, an
instrument transferring the shares is executed or, if the SDRT has not been paid, the
liability to pay the tax (but not necessarily interest and penalties) would be cancelled.
However, an agreement to transfer the ADSs of the Company will not give rise to SDRT.