BT 2015 Annual Report Download - page 225

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Overview
The Strategic Report
Purpose and strategy Delivering our strategy Group performance Governance Financial statements Additional information
he sneries cost savins and interation costs described above reect
both the beneficial eleents and the relevant costs and are continent
on the Acquisition and could not be achieved independently.
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This is a summary only of the principal US federal income tax and UK tax
consequences of the ownership and disposition of ordinary shares or
s b U olders as defined below who hold their ordinar shares
or ADSs as capital assets. It does not address all aspects of US federal
income taxation and does not address aspects that may be relevant
to persons who are subject to special provisions of US federal income
tax law, including: US expatriates; insurance companies; tax-exempt
oranisations bans reulated investent copanies financial
institutions; securities broker-dealers; traders in securities who elect a
mark-to-market method of accounting; persons subject to alternative
minimum tax; investors that directly, indirectly or by attribution own
10% or more of the outstanding share capital or voting power of BT;
persons holding their ordinary shares or ADSs as part of a straddle,
hedging transaction or conversion transaction; persons who acquired
their ordinary shares or ADSs pursuant to the exercise of options or
otherwise as compensation; or persons whose functional currency is
not the US Dollar, amongst others. Those holders may be subject to US
federal incoe ta conseuences dierent fro those set forth below.
or the purposes of this suar a U older is a beneficial owner of
ordinary shares or ADSs that, for US federal income tax purposes, is:
a citien or individual resident of the United tates a corporation or
other entity taxable as a corporation for US federal income tax purposes)
created or organised in or under the laws of the United States or any
political subdivision thereof; an estate the income of which is subject
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 adviser reardin the specific ta conseuences of ownin and
disposing of the ordinary shares or ADSs.
n particular this suar is based on i current UK ta law and the
practice of er aests evenue  ustos  and U law and U
nternal evenue ervice  practice includin the nternal evenue
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 Kindo-United tates onvention
relatin to estate and ift taes and iii the United Kindo-United
States Tax Convention that entered into force on 31 March 2003 and
the protocol thereto the onvention all as in eect on the date of
this Annual Report, all of which are subject to change or changes in
interpretation possibl with retroactive eect.
US Holders should consult their own tax advisers 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
ordinar shares andor s.
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 b 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 previousl taed earnins and profits
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.
ertain U olders includin individuals are eliible for reduced rates
of U federal incoe ta currentl at a aiu of 0 in respect of
ualified dividend incoe received in taable ears beinnin 1 anuar
2013. There could also be a 3.8% net investment income tax on
dividends to individuals with income above a certain amount. This also
bean in 01. or these purposes ualified dividend incoe enerall
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 reuireents includin that either i the
shares or ADSs with respect to which the dividend has been paid are
readil tradable on an established securities aret in the U or ii
the non-U corporation is eliible for the benefits of a coprehensive
U incoe ta treat such as the onvention which provides for the
exchange of information. BT currently believes that dividends paid
with respect to its ordinar shares and s should constitute ualified
dividend income for US federal income tax purposes. Each individual
US Holder of ordinary shares or ADSs is urged to consult his own tax
adviser regarding the availability to him of the reduced dividend tax rate
in light of his own particular situation and regarding the computations
of his forein ta credit liitation with respect to an ualified 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
establishent in the UK and the ordinar shares andor s 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 ordinar shares andor s.
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 an double ta treat reat non-resident on or after 1 arch
2005 and continues to not be resident or ordinarily resident in the UK
or continues to be reat non-resident for a period of less than five ears
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 s in an aount eual to the dierence between the U
Dollar value of the amount realised on the disposition and the US