RBS 2010 Annual Report Download - page 434

Taxation for US Holders continued
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. 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. 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 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. 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.
AUS 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 tax 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.
RBS Group 2010432
Shareholder information continued