RBS 2007 Annual Report Download - page 247

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RBS Group • Annual Report and Accounts 2007
Shareholder information
PROs
United States
Payments of interest on a PRO (including any UK withholding
tax, as to which see below) will constitute foreign source
dividend income for US federal income tax purposes to the
extent paid out of the current or accumulated earnings and
profits of the company, as determined for US federal income
tax purposes. Payments will not be eligible for the dividends-
received deduction allowed to corporate US Holders. A US
Holder who is entitled under the Treaty to a refund of UK tax,
if any, withheld on a payment will not be entitled to claim a
foreign tax credit with respect to such tax.
Subject to applicable limitations that may vary depending upon
a holder’s individual circumstances, dividends paid to certain
non-corporate US Holders in taxable years beginning before 1
January 2011 will be taxable at a maximum tax rate of 15%.
Non-corporate US Holders should consult their own tax
advisers to determine whether they are subject to any special
rules that limit their ability to be taxed at this favourable rate.
In addition, bills have been introduced in both the US House
and the US Senate which would, if enacted, deny the
favourable tax rates described in the preceding paragraph for
dividends paid in respect of certain securities, including
securities such as PROs, where the issuer of the securities is
allowed a deduction under the tax laws of a foreign country
with respect to such dividend. The proposed legislation would
apply to dividends received after the date of its enactment. It
is not possible to predict whether the proposed legislation will
be enacted, either in its present form or any other form. Non-
corporate US Holders should consult their tax advisers with
respect to the potential enactment of currently proposed
legislation and its application in their particular circumstances.
A US Holder will, upon the sale, exchange or redemption of a
PRO, generally recognise capital gain or loss for US federal
income tax purposes (assuming that in the case of a
redemption, such US Holder does not own, and is not deemed
to own, any ordinary shares or ordinary ADSs of the company)
in an amount equal to the difference between the amount
realised (excluding any amount in respect of mandatory
interest and any missed payments which are to be satisfied on
a missed payment satisfaction date, which would be treated as
ordinary income) and the US Holder’s tax basis in the PRO.
A US Holder who is liable for both UK and US tax on gain
recognised on the disposal of PROs will generally be entitled,
subject to certain limitations, to credit the UK tax against its US
federal income tax liability in respect of such gain.
United Kingdom
Taxation of payments on the PROs
Payments on the PROs will constitute interest rather than
dividends for UK withholding tax purposes. However, the PROs
will constitute ‘quoted eurobonds’ within the meaning of
section 987 of the Income Tax Act 2007 and therefore
payments of interest will not be subject to withholding or
deduction for or on account of UK taxation as long as the
PROs remain at all times listed on a ‘recognised stock
exchange’ within the meaning of section 1005 of the Income
Tax Act 2007. In all other cases, an amount must be withheld
on account of UK income tax at the savings rate (currently
20%) subject to any direction to the contrary by HM Revenue
& Customs 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 HM
Revenue & Customs directs otherwise). Where interest has
been paid under deduction of UK withholding tax, US Holders
may be able to recover the tax deducted under the Treaty.
Any paying agent or other person by or 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 HM Revenue &
Customs. HM Revenue & Customs may communicate this
information to the tax authorities of other jurisdictions.
HM Revenue & Customs confirmed at around the time of the
issue of the PROs that interest payments would 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 PROs, provided that at the time
an interest payment is made, the PROs 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 part of 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, HM
Revenue & Customs has confirmed that a company holding an
interest in the PROs 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
PROs 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 PROs are
attributable. There are exemptions for interest received by
certain categories of agents (such as some brokers and
investment managers).