BP 2008 Annual Report Download - page 98

BP Annual Report and Accounts 2008
Additional information for shareholders
between the US and the UK that entered into force on 31 March 2003
(the Treaty). These laws are subject to change, possibly on a retroactive
basis. This section is further based in part on the representations of the
Depositary and assumes that each obligation in the Deposit Agreement
and any related agreement will be performed in accordance with its terms.
For purposes of the Treaty and the estate and gift tax Convention
(the ‘Estate Tax Convention’), and for US federal income tax and UK
taxation purposes, a holder of ADRs evidencing ADSs will be treated as
the owner of the company’s ordinary shares represented by those ADRs.
Exchanges of ordinary shares for ADRs and ADRs for ordinary shares
generally will not be subject to US federal income tax or to UK taxation
other than stamp duty or stamp duty reserve tax, as described below.
Investors should consult their own tax adviser regarding the US
federal, state and local, the UK and other tax consequences of owning
and disposing of ordinary shares and ADSs in their particular
circumstances, and in particular whether they are eligible for the
benefits of the Treaty.
Taxation of dividends
UK taxation
Under current UK taxation law, no withholding tax will be deducted from
dividends paid by the company, including dividends paid to US holders.
A shareholder that is a company resident for tax purposes in the UK or
trading in the UK through a permanent establishment generally will not
be taxable in the UK on a dividend it receives from the company. A
shareholder who is an individual resident for tax purposes in the UK is
subject to UK tax but entitled to a tax credit on cash dividends paid on
ordinary shares or ADSs of the company equal to one-ninth of the
cash dividend.
US federal income taxation
A US holder is subject to US federal income taxation on the gross
amount of any dividend paid by the company out of its current or
accumulated earnings and profits (as determined for US federal income
tax purposes). Dividends paid to a non-corporate US holder in taxable
years beginning before 1 January 2011 that constitute qualified dividend
income will be taxable to the holder at a maximum tax rate of 15%,
provided that the holder has a holding period in the ordinary shares or
ADSs of more than 60 days during the 121-day period beginning 60 days
before the ex-dividend date and meets other holding period
requirements. Dividends paid by the company with respect to the
shares or ADSs will generally be qualified dividend income.
As noted above in UK taxation, a US holder will not be subject to
UK withholding tax. A US holder will include in gross income for US
federal income tax purposes the amount of the dividend actually
received from the company and the receipt of a dividend will not entitle
the US holder to a foreign tax credit.
For US federal income tax purposes, a dividend must be included
in income when the US holder, in the case of ordinary shares, or the
Depositary, in the case of ADSs, actually or constructively receives the
dividend, and will not be eligible for the dividends-received deduction
generally allowed to US corporations in respect of dividends received
from other US corporations. Dividends will be income from sources
outside the US, and generally will be ‘passive category income’ or, in
the case of certain US holders, ‘general category income,’ each of which
is treated separately for purposes of computing the allowable foreign
tax credit.
The amount of the dividend distribution on the ordinary shares or
ADSs that is paid in pounds sterling will be the US dollar value of the
pounds sterling payments made, determined at the spot pounds
sterling/US dollar rate on the date the dividend distribution is includible
in income, regardless of whether the payment is in fact converted into
US dollars. Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date the pounds sterling dividend
payment is includible in income to the date the payment is converted
into US dollars will be treated as ordinary income or loss and will not be
eligible for the 15% tax rate on qualified dividend income. The gain or
loss generally will be income or loss from sources within the US for
foreign tax credit limitation purposes.
Distributions in excess of the company’s earnings and profits,
as determined for US federal income tax purposes, will be treated as
a return of capital to the extent of the US holder’s basis in the ordinary
shares or ADSs and thereafter as capital gain, subject to taxation as
described in Taxation of capital gains – US federal income taxation.
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 ordinary shares or ADSs if the US holder is (i) a citizen of
the US resident or ordinarily resident in the UK, (ii) a US domestic
corporation resident in the UK by reason of its business being managed
or controlled in the UK or (iii) a citizen of the US or a corporation that
carries on a trade or profession or vocation in the UK through a branch or
agency or, in respect of corporations for accounting periods beginning on
or after 1 January 2003, through a permanent establishment, and that
have used, held, or acquired the ordinary shares or ADSs for the
purposes of such trade, profession or vocation of such branch, agency or
permanent establishment. However, such persons may be entitled to a
tax credit against their US federal income tax liability for the amount of
UK capital gains tax or UK corporation tax on chargeable gains (as the
case may be) that is paid in respect of such gain.
Under the Treaty, capital gains on dispositions of ordinary shares
or ADSs generally will be subject to tax only in the jurisdiction of
residence of the relevant holder as determined under both the laws of
the UK and the US and as required by the terms of the Treaty.
Under the Treaty, individuals who are residents of either the UK
or the US 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 ordinary shares or ADSs
may be subject to tax with respect to capital gains arising from a
disposition of ordinary shares or ADSs of the company not only in the
jurisdiction of which the holder is resident at the time of the disposition
but also in the other jurisdiction.
US federal income taxation
A US holder that sells or otherwise disposes of ordinary shares or ADSs
will recognize a capital gain or loss for US federal income tax purposes
equal to the difference between the US dollar value of the amount
realized and the holder’s tax basis, determined in US dollars, in the
ordinary shares or ADSs. Capital gain of a non-corporate US holder that
is recognized in taxable years beginning before 1 January 2011 is
generally taxed at a maximum rate of 15% if the holder’s holding period
for such ordinary shares or ADSs exceeds one year. The gain or loss will
generally be income or loss from sources within the US for foreign tax
credit limitation purposes. The deductibility of capital losses is subject
to limitations.
We do not believe that ordinary shares or ADSs will be treated as
stock of a passive foreign investment company, or PFIC, for US federal
income tax purposes, but this conclusion is a factual determination that
is made annually and thus is subject to change. If we are treated as a
PFIC, unless a US holder elects to be taxed annually on a mark-to-mark
basis with respect to ordinary shares or ADSs, gain realized on the sale
or other disposition of ordinary shares or ADSs would in general not be
treated as capital gain. Instead a US holder would be treated as if he or
she had realized such gain and certain ‘excess distributions’ ratably over
the holding period for ordinary shares or ADSs and would be taxed at
the highest tax rate in effect for each such year to which the gain was
allocated, in addition to which an interest charge in respect of the tax
attributable to each such year would apply.
Additional information for shareholders
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