Vodafone 2015 Annual Report Download - page 194

For the 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, this section is based
on the assumption that a holder of ADRs evidencing ADSs will be treated
as the owner of the shares in the Company represented by those
ADSs. Investors should note that a ruling by the rst-tier tax tribunal
in the UK has cast doubt on this view, but HMRC have stated that they
will continue to apply their long-standing practice of regarding the
holder of such ADRs as holding the benecial interest in the underlying
shares. Investors should note, however, that this is an area of some
uncertainty that may be subject to further developments in the future.
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 on page 193).
Taxation of dividends
UK taxation
Under current UK tax law no withholding tax will be deducted from
the dividends we pay. Shareholders who are within the charge
to UK corporation tax will be subject to corporation tax on the dividends
we pay unless the dividends fall within an exempt class and certain
other conditions are met. It is expected that the dividends we pay would
generally be exempt.
A shareholder in the Company who is an individual resident for UK tax
purposes in the UK, is entitled in calculating their liability to UK income
tax, to a tax credit on cash dividends we pay on our shares or ADSs and
the tax credit is equal to one-ninth of the cash dividend.
US federal income taxation
Subject to the passive foreign investment company (‘PFIC’) rules
described below, a US holder is subject to US federal income taxation
on the gross amount of any dividend we pay out of our current
or accumulated earnings and prots (as determined for US federal
income tax purposes). Dividends paid to a non-corporate US holder
will be taxable to the holder at the reduced rate normally applicable
to long-term capital gains provided that certain requirements are met.
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.
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 the dividends are received by the US holder
regardless of whether the payment is in fact converted into US dollars.
If dividends received in pounds sterling are converted into US dollars
on the day they are received, the US holder generally will not
be required to recognise foreign currency gain or loss in respect
of thedividend income.
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 our shares or ADSs if the US holder is:
a a citizen of the US, resident for UK tax purposes in the UK;
a a citizen of the US who becomes resident for UK tax purposes
in the UK, having ceased to be so resident for a period of ve years
or less and who was resident in the UK for at least four out of the
seven tax years immediately preceding the year of departure,
and who disposed of the shares or ADSs during the period of non-
residence (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 a US domestic corporation resident in the UK by reason of being
centrally managed and controlled in the UK; or
a a citizen of the US or a US domestic corporation that carries
on a trade, profession or vocation in the UK 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 UK and the US and
as required by the terms of the treaty. However, the treaty provides that
individuals who are residents of either the UK or the US 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
is a temporary non-resident).
US federal income taxation
Subject to the PFIC rules described below, a US holder that sells
or otherwise disposes of our shares or ADSs generally 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 adjusted tax basis, determined in US dollars, in the shares
or ADSs. This capital gain or loss will be long-term capital gain or loss
if the US holder’s holding period in the shares or ADSs exceeds one year.
The gain or loss will generally be income or loss from sources within the
US for foreign tax credit limitation purposes. The deductibility of losses
is subject to limitations.
Vodafone Group Plc
Annual Report 2015
192
Shareholder information (continued)
Unaudited information