RBS 2012 Annual Report Download - page 525

RBS GROUP 2012
523
Taxation for US Holders
The following discussion summarises certain US federal and UK tax
consequences of the ownership and disposition of ordinary 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, ordinary ADSs, preference ADSs or
PROs (a “US Holder”). This summary assumes that a US Holder is
holding ordinary 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, 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, 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 liable for the alternative minimum tax
or ‘Medicare contribution tax’, 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, ordinary ADSs,
preference ADSs or PROs by consulting their own tax advisers.
The following discussion assumes that the company was not for the
taxable year ended 31 December 2012, and will not become in the
foreseeable future, a passive foreign investment company - see ‘Passive
Foreign Investment Company (PFIC) considerations’ on page 526.
Ordinary 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
respective 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 favourable US tax rates
applicable to dividends received by certain non-corporate US holders
(described below). Accordingly, the availability of the favourable tax rates
for dividends received by certain non-corporate US holders 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,
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
particular circumstances and the discussion above regarding concerns
expressed by the US Treasury, dividends paid to certain non-corporate
US Holders may be taxable at the favourable rates applicable to long-
term capital gain. 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 these favourable rates.