RBS 2010 Annual Report Download - page 432

Taxation for US Holders
The following discussion summarises certain US federal and UK tax
consequences of the acquisition, ownership and disposition of ordinary
shares, non-cumulative dollar preference shares, ADSs representing
ordinary shares (ordinary ADSs), ADSs representing non-cumulative
dollar preference shares (preference ADSs) or PROs by a beneficial
owner that is a citizen or resident of the United States or that otherwise
will be subject to US federal income tax on a net income basis in respect
of the ordinary shares, non-cumulative dollar preference shares, ordinary
ADSs, preference ADSs or PROs (a US Holder). This summary assumes
that a US Holder is holding ordinary shares, non-cumulative dollar
preference shares, ordinary ADSs, preference ADSs or PROs, as
applicable, as capital assets. This summary does not address the tax
consequences to a US Holder (i) that is resident (or, in the case of an
individual, ordinarily resident) in the UK for UK tax purposes, (ii) that
carries on a trade, profession or vocation through a branch, agency or
permanent establishment in the UK in connection with which their
ordinary shares, non-cumulative preference shares, ordinary ADSs,
preference ADSs or PROs, are held, used or acquired, or (iii) generally,
that is a corporation which alone or together with one or more associated
companies, controls, directly or indirectly, 10% or more of the voting
stock of the company, nor does this summary address the tax
consequences to US Holders subject to special rules, such as certain
financial institutions, dealers or traders in securities who use a mark-to-
market method of tax accounting, persons holding ordinary shares, non-
cumulative dollar preference shares, ordinary ADSs, preference ADSs or
PROs as part of a hedging transaction, straddle, wash sale, conversion
transaction or integrated transaction or persons entering into a
constructive sale with respect to such securities, persons whose
functional currency for US federal income tax purposes is not the US
dollar, entities classified as partnerships for US federal income tax
purposes, tax-exempt entities or persons that own or are deemed to own
10% or more of the voting stock of the company.
The statements and practices set forth below regarding US and UK tax
laws, including the US/UK double taxation convention relating to income
and capital gains which entered into force on 31 March 2003 (the Treaty),
and the US/UK double taxation convention relating to estate and gift
taxes (the Estate Taxation Treaty), are based on those laws and
practices as in force and as applied in practice on the date of this report.
This summary is not exhaustive of all possible tax considerations and
holders are advised to satisfy themselves as to the overall tax
consequences, including specifically the consequences under US federal,
state, local and other laws, and possible changes in taxation law, of the
acquisition, ownership and disposition of ordinary shares, non-cumulative
dollar preference shares, ordinary ADSs, preference ADSs or PROs by
consulting their own tax advisers.
The following discussion assumes that the company is not, and will not
become, a passive foreign investment company - see ‘Passive Foreign
Investment Company (PFIC) considerations’ on page 433.
Ordinary shares, preference shares, ordinary ADSs and preference
ADSs
Taxation of dividends
For the purposes of the Treaty, the Estate Taxation Treaty and the US
Internal Revenue Code of 1986 as amended (the Code), US Holders of
ordinary ADSs and preference ADSs should be treated as owners of the
ordinary shares and the non-cumulative dollar preference shares
underlying such ADSs.
The US Treasury has expressed concerns that parties to whom
depositary receipts are released before shares are delivered to the
depositary, or intermediaries, in the chain of ownership between US
holders and the issuer of the security underlying the depositary receipts
may be taking actions that are inconsistent with the claiming of foreign
tax credits for US holders of depositary receipts. Such actions would also
be inconsistent with the claiming of the reduced rate of US tax applicable
to dividends received by certain non-corporate US holders. Accordingly,
the availability of the reduced tax rate for dividends received by certain
non-corporate US holders of ordinary ADSs could be affected by actions
taken by such parties or intermediaries.
The company is not required to withhold UK tax at source from dividend
payments it makes or from any amount (including any amounts in respect
of accrued dividends) distributed by the company. US Holders who are
not resident or ordinarily resident in the UK and who do not carry on a
trade, profession or vocation in the UK through a branch, agency or
permanent establishment in connection with which their ordinary shares,
non-cumulative preference shares, ordinary ADSs or preference ADSs
are held, used or acquired will not be subject to UK tax in respect of any
dividends received on the relevant shares or ADSs.
Distributions by the company (other than certain pro rata distributions of
ordinary shares or rights to receive such shares) 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. Because
the company does not maintain calculations of its earnings and profits
under US federal income tax principles, it is expected that distributions
will be reported to US Holders as dividends. Payments will not be eligible
for the dividends-received deduction generally allowed to corporate US
holders.
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 2013 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.
RBS Group 2010430
Shareholder information continued