BT 2005 Annual Report Download - page 138

Additional information for shareholders BT Group plc Annual Report and Form 20-F 2005 137
Certain US Holders (including individuals) are eligible for reduced rates of US federal income tax (currently at a
maximum rate of 15%) in respect of ‘qualified dividend income’ received in taxable years beginning before 1 January
2009. For this purpose, qualified dividend income generally includes dividends paid by a non-US corporation if, among
other things, the US Holders meet certain minimum holding periods and the non-US corporation satisfies certain
requirements, including that 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 should constitute
qualified dividend income for US federal income tax purposes. The US Treasury and the IRS have announced their
intention to promulgate rules pursuant to which holders of ADSs or ordinary shares, among others, will be permitted to
rely on certifications from issuers to establish that dividends are treated as qualified dividend income. Each individual
US Holder of ordinary shares or ADSs is urged to consult his own tax advisor regarding the availability to him of the
reduced dividend tax rate in light of his own particular situation and regarding the computations of his foreign tax
credit limitation with respect to any qualified dividend income paid by BT to him, as applicable.
Taxation of capital gains
Unless a US resident carries on a trade through a branch or agency (if an individual), or through a permanent
establishment (if a company) in the UK, and the disposal of ordinary shares and/or ADSs is related to the activities of
that trade, neither UK capital gains tax nor corporation tax is normally 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, exchange
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. 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. The deductibility of capital losses is subject to significant limitations.
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, exchange or other 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.
Backup withholding is not an additional tax. 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
depositary 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.
UK inheritance and gift taxes in connection with ordinary shares and/or ADSs
Where an individual holder, who is not a UK national, of ordinary shares and/or ADSs falls within the scope of the UK/
US Estate and Gift Tax Convention, US-domiciled holders of ordinary shares and/or ADSs will not generally be subject
to UK inheritance tax on a gift of ordinary shares and/or ADSs if the gift is subject to US federal gift tax. Similarly,