BT 2014 Annual Report Download - page 203

200 Additional information
to US federal income taxation regardless of its sources, or a trust if
a US court can exercise primary supervision over the administration
of the trust and one or more US persons are authorised to control all
substantial decisions of the trust. If a partnership holds ordinary shares
or ADSs, the US tax treatment of a partner generally will depend upon
the status of the partner and the activities of the partnership. A partner
in a partnership that holds ordinary shares or ADSs is urged to consult its
own tax advisor regarding the specic tax consequences of owning and
disposing of the ordinary shares or ADSs.
In particular, this summary is based on (i) current UK tax law and the
practice of Her Majesty’s Revenue & Customs (HMRC) and US law and US
Internal Revenue Service (IRS) practice, including the Internal Revenue
Code of 1986, as amended, existing and proposed Treasury regulations,
rulings, judicial decisions and administrative practice, all as currently in
eect and available, (ii) the United Kingdom–United States Convention
relating to estate and gift taxes, and (iii) the United Kingdom–United
States Tax Convention that entered into force on 31 March 2003 and
the protocol thereto (the Convention), all as in eect on the date of
this Annual Report, all of which are subject to change or changes in
interpretation, possibly with retroactive eect.
US Holders should consult their own tax advisors as to the applicability
of the Convention and the consequences under UK, US federal, state and
local, and other laws, of the ownership and disposition of ordinary shares
or ADSs.
Taxation of dividends
Under current UK tax law, BT will not be required to withhold tax at
source from dividend payments it makes. Unless a US Holder of ordinary
shares or ADSs is resident in or ordinarily resident for UK tax purposes
in the UK or unless a US Holder of ordinary shares or ADSs carries on
a trade, profession or vocation in the UK through a branch or agency,
or, in the case of a company, a permanent establishment in the UK,
the holder should not be liable for UK tax on dividends received in
respect of ordinary shares and/or ADSs.
For US federal income tax purposes, a distribution will be treated as
ordinary dividend income. The amount of the distribution includible
in gross income of a US Holder will be the US Dollar value of the
distribution calculated by reference to the spot rate in eect on the date
the distribution is actually or constructively received by a US Holder of
ordinary shares, or by the Depositary, in the case of ADSs. A US Holder
who converts Sterling into US Dollars on the date of receipt generally
should not recognise any exchange gain or loss. A US Holder who does
not convert Sterling into US Dollars on the date of receipt generally will
have a tax basis in Sterling equal to their US Dollar value on such date.
Foreign currency gain or loss, if any, recognised by the US Holder on a
subsequent conversion or other disposition of Sterling generally will be
US source ordinary income or loss. In addition, in a situation where US
holders receive distributions of previously taxed earnings and prots,
foreign currency gain or loss will generally be recognised as the same
source as the associated income included under Subpart F rules for US
federal income tax purposes. Dividends paid by BT to a US Holder will not
be eligible for the US dividends received deduction that may otherwise
be available to corporate shareholders.
For purposes of calculating the foreign tax credit limitation, dividends
paid on the ordinary shares or ADSs will be treated as income from
sources outside the US and generally will constitute passive income’.
The rules relating to the determination of the foreign tax credit are very
complex. US Holders who do not elect to claim a credit with respect
to any foreign taxes paid in a given taxable year may instead claim a
deduction for foreign taxes paid. A deduction does not reduce US federal
income tax on a Dollar for Dollar basis like a tax credit. The deduction,
however, is not subject to the limitations applicable to foreign credits.
There will be no right to any UK tax credit or to any payment from HMRC
in respect of any tax credit on dividends paid on ordinary shares or ADSs.
Certain US Holders (including individuals) are eligible for reduced rates
of US federal income tax (currently at a maximum of 20%) in respect of
qualied dividend income received in taxable years beginning 1January
2013. For this purpose, qualied 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 satises certain requirements, including that either (i) the
shares or ADSs with respect to which the dividend has been paid are
readily tradable on an established securities market in the US, or (ii)
the non-US corporation is eligible for the benets of a comprehensive
US income tax treaty (such as the Convention) which provides for the
exchange of information. BT currently believes that dividends paid
with respect to its ordinary shares and ADSs should constitute qualied
dividend income for US federal income tax purposes. 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 qualied dividend
income paid by BT to him, as applicable.
Taxation of capital gains
Unless a US Holder of ordinary shares or ADSs is resident in or ordinarily
resident for UK tax purposes in the UK or unless a US Holder of ordinary
shares or ADSs carries on a trade, profession, or vocation in the UK
through a branch, agency, or in the case of a company, a permanent
establishment in the UK, and the ordinary shares and/or ADSs have been
used, held, or acquired for the purposes of that trade, profession or
vocation, the holder should not be liable for UK tax on capital gains
on a disposal of ordinary shares and/or ADSs.
A US Holder who is an individual and who has ceased to be resident or
ordinarily resident for tax purposes in the UK on or after 17 March 1998
or who falls to be regarded as resident outside the UK for the purposes
of any double tax treaty (Treaty non-resident) on or after 16 March
2005 and continues to not be resident or ordinarily resident in the UK
or continues to be Treaty non-resident for a period of less than ve years
of assessment and who disposes of his ordinary shares or ADSs during
that period may also be liable on his return to the UK to UK tax on capital
gains, subject to any available exemption or relief, even though he is not
resident or ordinarily resident in the UK or is Treaty non-resident at the
time of disposal.
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 dierence 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. Long-
term capital gains recognised by an individual US Holder generally are
subject to US federal income tax at preferential rates. The deductibility
of capital losses is subject to signicant limitations.
A US Holder’s tax basis in an ordinary share will generally be its US Dollar
cost. The US Dollar cost of an ordinary share purchased with foreign
currency will generally be the US Dollar value of the purchase price on
the date of purchase, or the settlement date for the purchase, in the case
of ordinary shares traded on an established securities market, as dened
in the applicable Treasury Regulations, that are purchased by a cash basis
US Holder (or an accrual basis US Holder that so elects). Such an election
by an accrual basis US Holder must be applied consistently from year to
year and cannot be revoked without the consent of the IRS. The amount
realised on a sale or other disposition of ordinary shares for an amount in
foreign currency will be the US Dollar value of this amount on the date of
sale or disposition. On the settlement date, the US Holder will recognise
US source foreign currency gain or loss (taxable as ordinary income or
loss) equal to the dierence (if any) between the US Dollar value of the