Vodafone 2008 Annual Report Download - page 147

This section describes, primarily for a US holder (as defined below), in general
terms, the principal US federal income tax and UK tax consequences of owning
or disposing of shares or ADSs in the Company held as capital assets (for US and
UK tax purposes). This section does not, however, cover the tax consequences for
members of certain classes of holders subject to special rules including officers
of the Company, employees and holders that, directly or indirectly, hold 10% or
more of the Company’s voting stock. The tax consequences of the return of
capital and the share consolidation undertaken during the 2007 financial year
pursuant to a B share scheme are also not covered in this section. Guidance for
holders of B shares in certain specific circumstances was included in the Circular
for the issue of B shares, a copy of which is available on the Company’s website
at www.vodafone.com.
A US holder is a beneficial owner of shares or ADSs that is for US federal income
tax purposes:
a citizen or resident of the United States;
a US domestic corporation;
an estate, the income of which is subject to US federal income tax regardless
of its source; or
a trust, if a US court can exercise primary supervision over the trust’s
administration and one or more US persons are authorised to control all
substantial decisions of the trust.
If a partnership holds the shares or ADSs, the US federal income tax treatment of
a partner will generally depend on the status of the partner and the tax treatment
of the partnership. A partner in a partnership holding the shares or ADSs should
consult its tax advisor with regard to the US federal income tax treatment of an
investment in the shares or ADSs.
This section is based on the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations thereunder, published
rulings and court decisions, and on the tax laws of the United Kingdom and the
Double Taxation Convention between the United States and the United Kingdom
(the “Treaty”), all as currently in effect. These laws are subject to change,
possibly on a retroactive basis.
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.
Based on this assumption, for purposes of the Treaty and the US-UK double
taxation convention relating to estate and gift taxes (the “Estate Tax Convention”),
and 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.
US Federal Income Taxation
Subject to the PFIC rules described below, a US holder is subject to US federal
income taxation on the gross amount of any dividend paid by the Company out
of its current or accumulated earnings and profits (as determined for US federal
income tax purposes). Dividends paid to a non-corporate US holder in tax years
beginning before 1 January 2011 that constitute qualified dividend income will
be taxable to the holder at a maximum tax rate of 15%, provided that the ordinary
shares or ADSs are held for more than 60 days during the 121 day period
beginning 60 days before the ex-dividend date and the holder meets other
holding period requirements. Dividends paid by the Company with respect to the
shares or ADSs will generally be qualified dividend income.
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A US holder is 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.
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.
Dividends paid in taxable years beginning before 1 January 2007 generally will
be “passive” or “financial services” income, and dividends paid in taxable years
beginning after 31 December 2006 generally will be “passive” or “general”
income, which in either case 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:
a citizen of the United States resident or ordinarily resident for UK tax purposes
in the United Kingdom;
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 five 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;
a US domestic corporation resident in the United Kingdom by reason of being
centrally managed and controlled in the United Kingdom; or
a citizen of the United States or a US domestic corporation that carries on a
trade, profession or vocation in the United Kingdom through a branch or agency
or, in the case of US domestic 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.
Under the 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 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
Subject to the PFIC rules described below, 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, a capital gain of a non-corporate US holder that is recognised
in tax years beginning before 1 January 2011 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.
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Vodafone Group Plc Annual Report 2008 145