RBS 2004 Annual Report Download - page 229

section
05
227
Annual Report and Accounts 2004
Shareholder information
Shareholder
information
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 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. 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 by reason of (i) the fact that
interest may be deferred under the terms of issue or (ii) 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 UK
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 agents (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 July 2005 to provide to the tax authorities of other Member
States details of payments of interest or other similar income
paid by a person to an individual in another Member State,
except that Belgium, Luxembourg and Austria will instead
impose a withholding system for a transitional period unless
during such period they elect otherwise.
Disposal (including redemption)
A disposal (including redemption) of X-CAPs by a non-
corporate US Holder, 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 US Holder of
X-CAPs for preference shares or ADSs 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 previously.
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-corporate
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 US 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, 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.