RBS 2009 Annual Report Download - page 383

Shareholder information
381RBS Group Annual Report and Accounts 2009
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, such as the
main market of the New York Stock Exchange. 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
does not apply to 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 each case in connection with
which the interest is received or to which the PROs are attributable.
There are also 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 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, carried on through such 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,
profession or vocation 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.