BT 2004 Annual Report Download - page 152

Recent US tax law changes applicable to individuals
Under 2003 US tax legislation, some US Holders (including individuals) are eligible for reduced rates of US
federal income tax (currently a maximum of 15%) in respect of ‘‘qualified dividend income’’ received in taxable
years beginning after 31 December 2002 and beginning before 1 January 2009. For this purpose, qualified
dividend income generally includes dividends paid by non-US corporations if, among other things, certain
minimum holding periods are met and either (i) the shares (or ADSs) with respect to which the dividend has been
paid are readily tradeable on an established securities market in the United States, or (ii) the non-US corporation
is eligible for the benefits of a comprehensive US income tax treaty (such as both Conventions) which provides for
the exchange of information. BT currently believes that dividends paid with respect to its ordinary shares and
ADSs will constitute qualified dividend income for US federal income tax purposes, provided the individual US
Holders of its ordinary shares and ADSs meet certain requirements. Some of the eligibility requirements for non-
US corporations are not entirely certain, however, and further guidance from the IRS is anticipated. In addition,
the IRS is expected to issue certification procedures in 2004 whereby a non-US corporation will be required to
certify as to the eligibility of its dividends for the reduced US federal income tax rates.
Taxation of capital gains
Unless a US resident carries on a trade through a branch or agency in the UK, and the disposal of ordinary shares
and/or ADSs is related to the activities of that trade, UK capital gains tax is not charged on US residents who
dispose of ordinary shares and/or ADSs.
For US federal income tax purposes, a US Holder generally will recognise capital gain or loss on the sale or
other disposition of ordinary shares or ADSs in an amount equal to the difference between the US dollar value
of the amount realised on the disposition and the US Holder’s adjusted tax basis (determined in US dollars)
in the ordinary shares or ADSs. Such gain or loss generally will be US source gain or loss, and will be treated
as long-term capital gain or loss if the ordinary shares have been held for more than one year at the time
of disposition. The deductibility of capital losses is subject to significant limitations. Capital gains recognised by
an individual US Holder generally are subject to US federal income tax at preferential rates if specified holdings
periods are met.
Passive foreign investment company status
A non-US corporation will be classified as a Passive Foreign Investment Company (a ‘‘PFIC’’) for any taxable year
if at least 75% of its gross income consists of passive income or at least 50% of the average value of its assets
consist of assets that produce, or are held for the production of, passive income. BT currently believes that it did
not qualify as a PFIC for the taxable year ending 31 March 2004 for US federal income tax purposes. If BT were
to become a PFIC for any taxable year, US Holders would suffer adverse tax consequences. These consequences
may include having gains realised on the disposition of ordinary shares or ADSs treated as ordinary income rather
than capital gains and being subject to punitive interest charges on certain dividends and on the proceeds of the
sale or other disposition of the ordinary shares or ADSs. Furthermore, dividends paid by BT would not be
‘‘qualified dividend income’’ and would be subject to the higher rates applicable to other items of ordinary
income. US Holders should consult their own tax advisors regarding the potential application of the PFIC rules
to BT.
US information reporting and backup withholding
Dividends paid on and proceeds received from the sale or disposition of ordinary shares or ADSs may be subject
to information reporting to the IRS and backup withholding at a current rate of 28%. Certain exempt recipients
(such as corporations) are not subject to these information reporting requirements. Backup withholding will not
apply, however, to a Holder who provides a correct taxpayer identification number or certificate of foreign status
and makes any other required certification or who is otherwise exempt. US persons who are required to establish
their exempt status generally must furnish IRS Form W-9 (Request for Taxpayer Identification Number and
Certification). Non-US Holders generally will not be subject to US information reporting or backup withholding.
However, such Holders may be required to provide certification of non-US status in connection with payments
received in the United States or through certain US-related financial intermediaries.
Amounts withheld as backup withholding may be credited against a Holder’s US federal income tax liability.
A Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing
the appropriate claim for refund with the IRS and furnishing any required information.
UK stamp duty
A transfer of an ordinary share will generally be subject to UK stamp duty or UK stamp duty reserve tax at 0.5%
of the amount or value of any consideration provided. A transfer of an ordinary share into a clearance service
or American depository system gives rise to a 1.5% charge of either the amount of the consideration provided
or the value of the share issued. No UK stamp duty will be payable on the transfer of an ADS (assuming it is not
registered in the UK), provided that the transfer documents are executed and always retained outside the UK.
BT Annual Report and Form 20-F 2004151 Additional information for shareholders