Vodafone 2011 Annual Report Download - page 140

138 Vodafone Group Plc Annual Report 2011
Shareholder information continued
Taxation of capital gains
UK taxation
A US holder may be liable for both UK and US tax in respect of a gain on the
disposal of our shares or ADSs if the US holder is:
■a citizen of the United States resident or ordinarily resident for UK tax
purposes in the United Kingdom;
■a citizen of the United States who has been resident or ordinarily resident
for UK tax purposes in the United Kingdom, ceased to be so resident or
ordinarily resident for a period of less than five years of assessment and
who disposed of the shares or ADSs during that period (a ‘temporary non-
resident’), unless the shares or ADSs were also acquired during that
period, such liability arising on that individual’s return to the UK;
■a US domestic corporation resident in the United Kingdom by reason of
being centrally managed and controlled in the United Kingdom; or
■a citizen of the United States or a US domestic corporation that carries
on a trade, profession or vocation in the United Kingdom through a
branch or agency or, in the case of US domestic companies, through a
permanent establishment and that has used the shares or ADSs for the
purposes of such trade, profession or vocation or has used, held or
acquired the shares or ADSs for the purposes of such branch or agency
or permanent establishment.
Under the treaty capital gains on dispositions of the shares or ADSs are
generally subject to tax only in the country of residence of the relevant
holder as determined under both the laws of the United Kingdom and the
United States and as required by the terms of the treaty. However, individuals
who are residents of either the United Kingdom or the United States and
who have been residents of the other jurisdiction (the US or the UK, as the
case may be) at any time during the six years immediately preceding the
relevant disposal of shares or ADSs may be subject to tax with respect to
capital gains arising from the dispositions of the shares or ADSs not only in
the country of which the holder is resident at the time of the disposition but
also in that other country (although, in respect of UK taxation, generally only
to the extent that such an individual comprises a temporary non-resident).
US federal income taxation
Subject to the PFIC rules described below a US holder that sells or otherwise
disposes of our shares or ADSs will recognise a capital gain or loss for US
federal income tax purposes equal to the difference between the US dollar
value of the amount realised and the holder’s tax basis, determined in US
dollars, in the shares or ADSs. Generally a capital gain of a non-corporate US
holder that is recognised in tax years beginning before 1 January 2013 is
taxed at a maximum rate of 15% provided the holder has a holding period of
more than one year. The gain or loss will generally be income or loss from
sources within the United States for foreign tax credit limitation purposes.
The deductibility of losses is subject to limitations.
Additional tax considerations
UK inheritance tax
An individual who is domiciled in the United States (for the purposes of the
Estate Tax Convention) and is not a UK national will not be subject to UK
inheritance tax in respect of our shares or ADSs on the individual’s death or
on a transfer of the shares or ADSs during the individual’s lifetime, provided
that any applicable US federal gift or estate tax is paid, unless the shares or
ADSs are part of the business property of a UK permanent establishment or
pertain to a UK fixed base used for the performance of independent personal
services. Where the shares or ADSs have been placed in trust by a settlor
they may be subject to UK inheritance tax unless, when the trust was
created, the settlor was domiciled in the United States and was not a UK
national. Where the shares or ADSs are subject to both UK inheritance tax
and to US federal gift or estate tax, the estate tax convention generally
provides a credit against US federal tax liabilities for UK inheritance tax paid.
UK stamp duty and stamp duty reserve tax
Stamp duty will, subject to certain exceptions, be payable on any instrument
transferring our shares to the custodian of the depositary at the rate of 1.5%
on the amount or value of the consideration if on sale or on the value of such
shares if not on sale. Stamp duty reserve tax (‘SDRT’), at the rate of 1.5% of
the price or value of the shares, could also be payable in these circumstances
and on issue to such a person but no SDRT will be payable if stamp duty
equal to such SDRT liability is paid. A recent ruling by the European Court of
Justice has determined that the 1.5% SDRT charge on issue to a clearance
service is contrary to EU law. HMRC have indicated that where new shares
are first issued to a clearance service or to a depositary within the European
Union, the 1.5% SDRT charge will not be levied. However, to the extent that
the clearance service or depositary is located outside the European Union,
HMRC have indicated that such charge would still apply. In accordance with
the terms of the deposit agreement, any tax or duty payable on deposits of
shares by the depositary or the custodian of the depositary will be charged
to the party to whom ADSs are delivered against such deposits.
No stamp duty will be payable on any transfer of our ADSs provided that the
ADSs and any separate instrument of transfer are executed and retained at
all times outside the United Kingdom. A transfer of our shares in registered
form will attract ad valorem stamp duty generally at the rate of 0.5% of the
purchase price of the shares. There is no charge to ad valorem stamp duty
on gifts.
SDRT is generally payable on an unconditional agreement to transfer our
shares in registered form at 0.5% of the amount or value of the consideration
for the transfer, but is repayable if, within six years of the date of the
agreement, an instrument transferring the shares is executed or, if the SDRT
has not been paid, the liability to pay the tax (but not necessarily interest and
penalties) would be cancelled. However, an agreement to transfer our ADSs
will not give rise to SDRT.
PFIC rules
We do not believe that our shares or ADSs will be treated as stock of a passive
foreign investment company (‘PFIC’) for US federal income tax purposes.
This conclusion is a factual determination that is made annually and thus is
subject to change. If we are treated as a PFIC, any gain realised on the sale or
other disposition of the shares or ADSs would in general not be treated as
capital gain unless a US holder elects to be taxed annually on a mark-to-
market basis with respect to the shares or ADSs. Otherwise a US holder
would be treated as if he or she has realised such gain and certain “excess
distributions” rateably over the holding period for the shares or ADSs and
would be taxed at the highest tax rate in effect for each such year to which
the gain was allocated. An interest charge in respect of the tax attributable
to each such year would also apply. Dividends received from us would not
be eligible for the preferential tax rate applicable to qualified dividend
income for certain non-corporate holders.