BP 2011 Annual Report Download - page 171

Additional information for shareholders
BP Annual Report and Form 20-F 2011 169
Additional information for shareholders
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 2013 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 a US holder’s foreign tax credit limitation.
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 section below.
In addition, the taxation of dividends may be subject to the rules
for passive foreign investment companies (PFIC), described below under
‘Taxation of capital gains – US federal income taxation’. Distributions made
by a PFIC do not constitute qualified dividend income and are not eligible
for the 15% tax rate.
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 who 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. Any capital gain of a non-corporate US holder is generally taxed at
preferential rates 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-market
basis with respect to ordinary shares or ADSs, any 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 rateably 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. Certain ‘excess distributions’ would be similarly treated if we were
treated as a PFIC.
Additional tax considerations
Scrip Dividend Programme
The company has introduced an optional Scrip Dividend Programme,
wherein holders of ordinary shares or ADSs may elect to receive any
dividends in the form of new, fully-paid ordinary shares or ADSs of
the company, instead of cash. Please consult your tax adviser for the
consequences to you.
UK inheritance tax
The Estate Tax Convention applies to inheritance tax. ADSs held by an
individual who is domiciled for the purposes of the Estate Tax Convention
in the US and is not for the purposes of the Estate Tax Convention
a national of the UK will not be subject to UK inheritance tax on the
individual’s death or on transfer during the individual’s lifetime unless,
among other things, the ADSs are part of the business property of a
permanent establishment situated in the UK used for the performance of
independent personal services. In the exceptional case where ADSs are
subject to both inheritance tax and US federal gift or estate tax, the Estate
Tax Convention generally provides for tax payable in the US to be credited
against tax payable in the UK or for tax paid in the UK to be credited against
tax payable in the US, based on priority rules set forth in the Estate Tax
Convention.