BT 2001 Annual Report Download - page 153

(iii) Airtel
A sale and purchase agreement dated 2 May 2001 between BT, a subsidiary of BT and Vodafone, under which the BT
subsidiary has agreed to sell its entire interest in Airtel Mo
¤bil, S.A. (‘‘Airtel’’) to Vodafone. The consideration for the
transaction is »1.1 billion (payable in cash in euros). The closing of the transaction is conditional on EC Merger Regulation
approval.
Taxation (US Holders)
This is a summary only of the principal US federal income tax and UK tax consequences to bene¢cial owners of ADSs who either
are resident in the United States or hold ordinary shares or ADSs as assets e¡ectively connected with a US trade or business
(US Holders). It is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of
ordinary shares or ADSs.
Investors are advised to consult their tax advisers with respect to the tax consequences of their holdings, including the
consequences under applicable state and local laws. The statements of UK and US tax laws and practices set out below are based
on the laws in force and as interpreted by the relevant taxation authorities as of the date of this annual report. The statements
are subject to changes occurring after that date in UK or US law or practice, in the interpretation thereof by the relevant taxation
authorities, or in any double taxation convention between the United States and the UK.
In particular, this summary is based on the current convention between the United States and the UK for the avoidance of
double taxation with respect to taxes on income and capital gains (the Treaty) and the US Internal Revenue Code of 1986, as
amended. The US and the UK have entered into negotiations with respect to a new US-UK tax treaty, the provisions of which
ultimately may modify certain aspects of the following discussion.
Taxation of dividends
For dividends paid on or before 5 April 1999, US Holders were generally entitled to receive the cash dividend plus a Treaty
payment from the Inland Revenue of one quarter of the dividend, subject to a UK withholding tax of 15% of the aggregate
amount paid. As an example for illustration purposes only, a US Holder who was entitled to a dividend of »80 was also entitled
to a Treaty payment of »20, reduced by the withholding tax of 15% on the gross amount of »100, i.e. »15, leaving a net cash
payment of »85. The full dividend plus the full Treaty payment including the UK tax withheld was taxable income for US
purposes, and the US tax withheld generally was available as a US credit or deduction.
For dividends paid on or after 6 April 1999, the Treaty payment reduces to one ninth of the dividend (i.e. one tenth of the
gross payment). As a result of the UK withholding tax (which cannot exceed the amount of the hypothetical Treaty payment),
US Holders will no longer receive any Treaty payment. In the above example, the cash dividend would be »80, and the
hypothetical Treaty payment would be »8.89 (one ninth of »80). However, since the UK withholding tax (15% of »88.89), would
exceed the amount of the hypothetical Treaty payment, no Treaty payment will be made and the US Holder will receive only the
cash dividend (here, »80). A US holder will be taxable in the US on the full dividend and full hypothetical Treaty payment
(»88.89), and will be treated as having paid a foreign tax equal to the hypothetical Treaty payment (here, »8.89). The foreign tax
deemed paid generally will be available as a US credit or deduction.
For US federal income tax purposes, a distribution will be treated as ordinary dividend income to the extent paid out of our
current or accumulated earnings and pro¢ts, as determined for US tax purposes, based on the US dollar value of the distribution
on the date it is actually or constructively received (calculated by reference to the spot rate on the relevant date). Distributions by
us in excess of our current and accumulated earnings and pro¢ts will be treated ¢rst as a return of capital to the extent of the
US Holder’s basis in the ordinary shares and thereafter as capital gain. For foreign tax credit limitation purposes, dividends paid
by us will be income from sources outside the United States. Dividends paid by us will not be eligible for the US dividends
received deduction.
US Holders are urged to consult their own tax advisers concerning whether they are eligible for bene¢ts under the Treaty,
whether, and to what extent, a foreign tax credit will be available with respect to dividends received from us and the treatment of
any foreign currency gain or loss on any pounds sterling received with respect to ordinary shares that are not converted into
US dollars on the date the pounds sterling are actually or constructively received.
BT Annual report and Form 20-F 153