RBS 2008 Annual Report Download - page 295

RBS Group Annual Report and Accounts 2008294
Shareholder information continued
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
basic 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).
EU Directive on taxation of savings income
The European Union has adopted a directive regarding the taxation of
savings income. The Directive requires member states of the European
Union to provide to the tax authorities of other member states details of
payments of interest and other similar income paid by a person to an
individual or certain other persons resident in another member state,
except that Belgium, Luxembourg and Austria may instead impose a
withholding system for a transitional period unless during such period
they elect otherwise.
Disposal (including redemption)
A disposal (including redemption) of PROs 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 a vocation) in the UK through a branch or
agency and the PROs are, or have been, held or acquired for the
purposes of that trade, branch or agency.
A transfer of PROs 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 taxpayer 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 PROs are attributable.
Annual tax charges
Corporate US Holders of PROs 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 PROs, 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 PROs are
attributable.
Inheritance tax
In relation to PROs held through DTC (or any other clearing system), the
UK inheritance tax position is not free from doubt in respect of a lifetime
transfer, or death of, a US Holder who is not domiciled nor deemed to
be domiciled in the UK for inheritance tax purposes; HM Revenue &
Customs is known to consider that the situs of securities held in this
manner is not necessarily determined by the place where the securities
are registered. In appropriate circumstances, there may be a charge to
UK inheritance tax as a result of a lifetime transfer at less than market
value by, or on the death of, such US Holder. Inheritance tax is not
generally chargeable on gifts to individuals made more than seven
years before the death of the donor. However, exemption from, or a
reduction of, any such UK tax liability may be available under the Estate
Tax Treaty (see below). US Holders should consult their professional
advisers in relation to such potential liability.