RBS 2003 Annual Report Download - page 227

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Annual Report and Accounts 2003
Shareholder information
for its X-CAPs will be the same as the US Holder’s basis in the
X-CAPs at the time of the exchange and the US Holder’s holding
period for the preference shares or ADSs received in the exchange
will include the holding period of the X-CAPs exchanged.
United Kingdom
Taxation of payments of interest
Payments on the X-CAPs will constitute interest rather than
dividends for UK withholding tax purposes. However, the X-
CAPs will constitute “quoted eurobonds within the meaning of
section 349 of the Income and Corporation Taxes Act 1988
and therefore payments of interest will not be subject to
withholding or deduction for or on account of UK taxation as
long as X-CAPs are and remain at all times listed on the New
York Stock Exchange or some other ‘recognised stock
exchange’ within the meaning of section 841 of the Income
and Corporation Taxes Act 1988. So long as the X-CAPs are so
listed, withholding will not be required whether the X-CAPs are
in bearer or registered form. In all other cases an amount must
be withheld on account of UK income tax at the lower rate
(currently 20%) subject to any direction to the contrary by the
Inland Revenue under the Treaty and except that the
withholding obligation is disapplied in respect of payments to
persons who the company reasonably believes are within the
charge to corporation tax or fall within various categories
enjoying a special tax status (including charities and pension
funds), or are partnerships consisting of such persons (unless
the Inland Revenue directs otherwise).
If interest were paid under deduction of UK income tax (e.g. if
the X-CAPs lost their listing), US Holders may be able to claim
a refund of the tax deducted under the Treaty.
Any paying agent or other person through whom interest is
paid to, or by whom interest is received on behalf of, an
individual, may be required to provide information in relation to
the payment and the individual concerned to the UK Inland
Revenue. The Inland Revenue may communicate this
information to the tax authorities of other jurisdictions.
The UK Inland Revenue confirmed at around the time of issue
of the X-CAPs that interest payments should not be treated as
distributions for UK tax purposes (i) by reason of the fact that
interest may be deferred under the terms of issue or (ii) by
reason of the undated nature of the X-CAPs, provided that at
the time an interest payment is made, the X-CAPs are not held
by a company which is ‘associated’ with the company or by a
‘funded company’. A company will be associated with the
company if, broadly speaking, it is in the same group as the
company. A company will be a ‘funded company’ for these
purposes if there are arrangements involving that company
being put in funds (directly or indirectly) by the company, or an
entity associated with the company. In this respect, the Inland
Revenue has confirmed that a company holding an interest in
X-CAPs which incidentally has banking facilities with any
company associated with the company will not be a ‘funded
company’ by virtue of such facilities.
Interest on the X-CAPs constitutes UK source income for tax
purposes and, as such, may be subject to income tax by
direct assessment even where paid without withholding.
However, interest with a UK source received without deduction
or withholding on account of UK tax will not be chargeable to
UK tax in the hands of a US Holder unless, in the case of a
corporate US Holder, such US Holder carries on a trade in the
UK through a UK permanent establishment or in the case of
other US Holders, such persons carry on a trade, profession or
vocation in the UK through a UK branch or agency in
connection with which the interest is received or to which the
X-CAPs are attributable. There are exemptions for interest
received by certain categories of agent (such as some brokers
and investment managers).
EU Directive on taxation of savings income
The European Union has adopted a new directive regarding
the taxation of savings income. Subject to a number of
important conditions being met, Member States of the
European Union will be required from a date not earlier than
1 January 2005 to provide to the tax authorities of another
Member State details of payments of interest or other similar
income paid by a person within its jurisdiction to an individual
resident in that other Member State, except that Belgium,
Luxembourg and Austria will instead operate a withholding
system for a transitional period in relation to such payments
unless during such period they elect otherwise.
Disposal (including redemption)
A disposal (including redemption) of X-CAPs by a US Holder,
who is an individual or other non corporation tax payer, will not
give rise to any liability to UK taxation on capital gains unless
the US Holder carries on a trade (which for this purpose
includes a profession or vocation) in the UK through a branch
or agency and the X-CAPs are, or have been, held or acquired
for the purposes of that trade, branch or agency. The
exchange by such a US Holder of X-CAPs for ADRs pursuant
to the company’s exercise of its exchange right will not give
rise to a charge to UK tax on capital gains even if such US
Holder would be subject to tax on a disposal of such Holder’s
X-CAPs in accordance with the tax treatment referred to in the
preceding paragraph.
A transfer of X-CAPs by a US Holder will not give rise to a
charge to UK tax on accrued but unpaid interest payments,
unless the US Holder is an individual or other non corporation
tax payer and at any time in the relevant year of assessment or
accounting period carries on a trade in the UK through a
branch or agency to which the X-CAPs are attributable.
Annual tax charges
Corporate holders of X-CAPs may be subject to annual UK tax
charges (or relief) by reference to fluctuations in exchange
rates and in respect of profits, gains and losses arising from
the X-CAPs, in place of the tax treatment referred to in the two
preceding paragraphs but only if such corporate US Holders
carry on a trade, profession or vocation in the UK through a UK
permanent establishment to which the X-CAPs are attributable.