Unilever 2003 Annual Report Download - page 162

Unilever Annual Report & Accounts and Form 20-F 2003 159
Taxation for US residents holding shares in NV
The following notes are provided for guidance. US residents
should consult their local tax advisers, particularly in connection
with potential liability to pay US taxes on disposal, lifetime gift or
bequest of their shares.
Netherlands taxation on dividends
Dividends of companies in the Netherlands are in principle subject
to dividend withholding tax of 25%. Where a shareholder is
entitled to the benefits of the current Income Tax Convention
(‘the Convention’) concluded on 18 December 1992 between the
United States and the Netherlands, when dividends are paid by
NV to:
• a United States resident;
• a corporation organised under the laws of the United States
(or any territory of it) having no permanent establishment in the
Netherlands of which such shares form a part of the business
property; or
• any other legal person subject to United States Federal income
tax with respect to its worldwide income, having no permanent
establishment in the Netherlands of which such shares form a
part of the business property;
these dividends qualify for a reduction of Netherlands withholding
tax on dividends from 25% to 15% (to 5% if the beneficial
owner is a company which directly holds at least 10% of the
voting power of NV shares and to 0% if the beneficial owner is
a qualified ‘Exempt Organisation’ as defined in Article 36 of the
Convention).
Where a United States resident or corporation has a permanent
establishment in the Netherlands, which has shares in NV forming
part of its business property, dividends it receives on those shares
are included in that establishment’s profit. They are subject to
the Netherlands income tax or corporation tax, as appropriate,
and the Netherlands tax on dividends will generally be applied
at the full rate of 25%. This tax will be treated as foreign income
tax eligible for credit against the shareholder’s United States
income taxes.
Under the Convention, qualifying United States organisations
that are generally exempt from United States taxes and that are
constituted and operated exclusively to administer or provide
pension, retirement or other employee benefits may be exempt
at source from withholding tax on dividends received from a
Netherlands corporation. An agreement published by the US
Internal Revenue Service on 20 April 2000 in release IR-INT-2000-
9 between the United States and the Netherlands tax authorities
describes the eligibility of these US organisations for benefits
under the Convention.
A United States trust, company or organisation that is operated
exclusively for religious, charitable, scientific, educational or public
purposes, is now subject to an initial 25% withholding tax rate.
Such an exempt organisation is entitled to reclaim from the
Netherlands Tax Authorities a refund of the Netherlands dividend
tax, if and to the extent that it is exempt from United States
Federal Income Tax and it would be exempt from tax in the
Netherlands if it were organised and carried on all its activities
there.
If you are an NV shareholder resident in any country other than
the United States or the Netherlands, any exemption from, or
reduction or refund of, the Netherlands dividend withholding tax
may be governed by the ‘Tax Regulation for the Kingdom of the
Netherlands’ or by the tax convention, if any, between the
Netherlands and your country of residence.
United States taxation on dividends
If you are a United States shareholder, the entire dividend
(including the withheld amount) will be ordinary dividend income.
Under recently enacted legislation (The Jobs and Growth Tax
Relief Reconciliation Act of 2003 – the 2003 Act), dividends
received by an individual during taxable years before 2009 will
be taxed at a maximum rate of 15%, provided the individual has
held the shares for more than 60 days during the 120-day period
beginning 60 days before the ex-dividend date and that certain
other conditions are satisfied. Unilever N.V. is a qualified foreign
corporation for the purposes of the 2003 Act. Dividends received
by an individual for taxable years after 2008 will be subject to tax
at ordinary income rates. The dividends are not eligible for the
dividends received deduction allowed to corporations.
For US foreign tax credit purposes, the dividend is foreign source
income, and the Netherlands withholding tax is a foreign income
tax that is eligible for credit against the shareholder’s United
States income taxes. However, the rules governing the US foreign
tax credit are complex, and additional limitations on the credit
apply to individuals receiving dividends eligible for the 15%
maximum tax rate on dividends described above.
Under a provision of the Netherlands Dividend Tax Act, NV
is entitled to a credit (up to a maximum of 3% of the gross
dividend from which dividend tax is withheld) against the amount
of dividend tax withheld before remittance to the Netherlands tax
authorities. For dividends paid on or after 1 January 1995, the
United States tax authority may take the position that the
Netherlands withholding tax eligible for credit should be
limited accordingly.
Netherlands taxation on capital gains
Under the Convention, if you are a United States resident or
corporation and you have capital gains on the sale of shares of a
Netherlands company, these are generally not subject to taxation
by the Netherlands. An exception to this rule generally applies if
you have a permanent establishment in the Netherlands and the
capital gain is derived from the sale of shares which form part of
that permanent establishment’s business property.
Netherlands succession duty and gift taxes
Under the Estate and Inheritance Tax Convention between the
United States and the Netherlands of 15 July 1969, United States
individual residents who are not Dutch citizens who have shares
will generally not be subject to succession duty in the Netherlands
on the individual’s death, unless the shares are part of the
business property of a permanent establishment situated in
the Netherlands.
A gift of shares of a Netherlands company by a person who is not
a resident or a deemed resident of the Netherlands is generally
not subject to Netherlands gift tax. A non-resident Netherlands
citizen, however, is still treated as a resident of the Netherlands
for gift tax purposes for ten years and any other non-resident
person for one year after leaving the Netherlands.