HSBC 2007 Annual Report Download - page 462

HSBC HOLDINGS PLC
Shareholder Information (continued)
Taxation of shares and dividends / History and development
460
Stamp duty and stamp duty reserve tax
Transfers of shares by a written instrument of
transfer generally will be subject to UK stamp duty
at the rate of 0.5 per cent of the consideration paid
for the transfer, and such stamp duty is generally
payable by the transferee.
An agreement to transfer shares, or any interest
therein, normally will give rise to a charge to stamp
duty reserve tax at the rate of 0.5 per cent of the
consideration. However, provided an instrument of
transfer of the shares is executed pursuant to the
agreement and duly stamped before the date on
which the stamp duty reserve tax becomes payable,
under the current practice of UK HM Revenue and
Customs it will not be necessary to pay the stamp
duty reserve tax, nor to apply for such tax to be
cancelled. Stamp duty reserve tax is generally
payable by the transferee.
Paperless transfers of shares within CREST, the
UK’s paperless share transfer system, are liable to
stamp duty reserve tax at the rate of 0.5 per cent of
the consideration. In CREST transactions, the tax is
calculated and payment made automatically.
Deposits of shares into CREST generally will not be
subject to stamp duty reserve tax, unless the transfer
into CREST is itself for consideration.
Taxation – US residents
The following is a summary, under current law, of
the principal UK tax and US federal income tax
considerations that are likely to be material to the
ownership and disposition of shares or ADSs by a
holder that is a resident of the US for the purposes of
the income tax convention between the US and the
UK (the ‘Treaty’), and is fully eligible for benefits
under the Treaty (an ‘eligible US holder’). The
summary does not purport to be a comprehensive
description of all of the tax considerations that may
be relevant to a holder of shares or ADSs. In
particular, the summary deals only with eligible US
holders that hold shares or ADSs as capital assets,
and does not address the tax treatment of holders that
are subject to special tax rules, such as banks, tax-
exempt entities, insurance companies, dealers in
securities or currencies, persons that hold shares or
ADSs as part of an integrated investment (including
a ‘straddle’) comprised of a share or ADS and one or
more other positions, and persons that own, directly
or indirectly, 10 per cent or more of the voting stock
of HSBC Holdings. This discussion is based on laws,
treaties, judicial decisions and regulatory
interpretations in effect on the date hereof, all of
which are subject to change. Under the current
income tax treaty between the UK and the US,
eligible US holders are no longer entitled to claim a
special foreign tax credit in respect of dividends.
Holders and prospective purchasers should
consult their own advisers regarding the tax
consequences of an investment in shares or ADSs in
light of their particular circumstances, including the
effect of any national, state or local laws.
In general, the beneficial owner of a share or
ADS will be entitled to benefits under the Treaty
(and, therefore, will be an eligible US holder) if it is
(i) an individual resident of the US, a US corporation
meeting ownership criteria specified in the Treaty or
other entity meeting criteria specified in the Treaty;
and (ii) not also resident in the UK for UK tax
purposes. Special rules, including a limitation of
benefits provision, may apply. The Treaty benefits
discussed below generally are not available to US
holders that hold shares or ADSs in connection with
the conduct of a business through a permanent
establishment, or the performance of personal
services through a fixed base, in the UK.
Taxation of dividends
An eligible US holder must include cash dividends
paid on the shares or ADSs in ordinary income on
the date that such holder or the ADS depositary
receives them, translating dividends paid in UK
pounds sterling into US dollars using the exchange
rate in effect on the date of receipt. Subject to certain
exceptions for positions that are held for less than 61
days or are hedged, and subject to a foreign
corporation being considered a ‘qualified foreign
corporation’ (which includes not being classified for
US federal income tax purposes as a passive foreign
investment company), certain dividends (‘qualified
dividends’) received by an individual eligible US
holder before 2009 generally will be subject to US
taxation at a maximum rate of 15 per cent. Based on
the company’s audited financial statements and
relevant market and shareholder data, HSBC
Holdings believes that it was not treated as a passive
foreign investment company for US federal income
tax purposes with respect to its 2005 or 2006 taxable
year. In addition, based on the company’s audited
financial statements and current expectations
regarding the value and nature of its assets, and the
sources and nature of its income, HSBC Holdings
does not anticipate being classified as a passive
foreign investment company for its 2007 taxable
year. Accordingly, dividends paid on the shares or
ADSs generally should be treated as qualified
dividends.