Taxation
The following discussion is intended as a general guide only.Shareholders who are in any doubt with regard to tax matters, orwho are resident in countries other than the USA should consulttheir tax adviser.
The Double Taxation (Income) Convention of 1975 (“the OldConvention”) between the United Kingdom and the United Stateshas been renegotiated and a new Convention (“the New Convention”) signed on 24 July 2001 has been ratified by the US and UK governments. The New Convention has come into force. The Old Convention ceased to apply to any dividends paid after 1 May 2003.
The following summary of the principal UK and certain US taxconsequences of ownership of Ordinary Shares or ADSs, held ascapital assets by US resident shareholders is based on current UK and US Federal tax law and practice and in part on representations of Citigroup as Depositary for ADSs and assumes that each obligation in the deposit agreement among the Company, the Depositary and the holders from time to time of ADSs and any related agreement will be performed in accordance with its terms. The US Treasury has expressed concerns that parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming, by US holders of ADSs, of foreign tax credits for US federal income tax purposes. Accordingly, the analysis of the creditability of UK taxesdescribed below could be affected by future actions that may be taken by the US Treasury.
Taxation of dividends paid to US Shareholders
An individual shareholder who is resident in the UK for UK taxpurposes and who receives a dividend from the Company is entitled to claim a tax credit in the UK against its income tax liability attributable to the dividend. US resident shareholders should note that under the New Convention no foreign tax credit is available in respect of any associated tax credit or UK withholding with respect to any dividend payment.
No dividends received deduction is allowed to US resident corporate shareholders with respect to dividends paid by the Company.
Subject to applicable limitations that may vary depending upon aUS resident shareholder’s individual circumstances, dividends paidto non-corporate US resident shareholders in taxable years beginning before 1 January 2009 will be taxable at a maximum tax rate of 15%. Non-corporate US resident shareholders 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.
Taxation on capital gains
In certain circumstances, when a shareholder in the UK sells shares, liability to tax in respect of capital gains is computed by reference to the market value of the shares on 31 March 1982. The market value of ICI Ordinary Shares at 31 March 1982, for the purposes of capital gains tax, was 309p.
ICI and Zeneca demerged on 1 June 1993. Post-demerger ICI shares will inherit a base cost for capital gains equivalent to 0.50239 of their pre-demerger base cost.
For the purposes of UK taxation of capital gains (“CGT”), the issueof new ICI shares in the 2002 rights issue was regarded as a reorganisation of the share capital of ICI. New shares acquired by taking up an entitlement under the rights issue were treated as the same asset as, and having been acquired at the same time as and at the same aggregate cost as, the prior holding of ICI shares. The subscription money for the new shares was added to the base cost of the existing holding. (In the case of shareholders within the charge to corporation tax, indexation allowance applies to the amount paid for the new shares only from the date the amount was paid or liable to be paid.)
Under the New Convention each contracting state may, in general,tax capital gains in accordance with the provisions of its domesticlaw. Under present UK law, individuals who are neither resident norordinarily resident in the UK, and companies which are not resident in the UK will not generally be liable to UK tax on capital gains made on the disposal of their Ordinary Shares or ADSs, unless such Ordinary Shares or ADSs are held in connection with a trade, profession or vocation carried on in the UK through a branch or agency. However, an individual who is temporarily resident outside the UK may, in certain circumstances, be subject to tax on gains realised whilst he or she is resident outside the UK.
A US resident shareholder will recognise capital gain or loss for US federal income tax purposes on the sale or exchange of the Ordinary Shares or ADSs in the same manner as on the sale or exchange of any other shares held as capital assets. Any gain or loss will generally be US source income or loss. US resident shareholders should consult their own tax advisers about the treatment of capital gains.
UK inheritance tax
Under the current Double Taxation (Estates) Convention (the “EstateTax Convention”), between the US and the UK, Ordinary Shares or ADSs held by an individual shareholder 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 United Kingdom, nor resident in the UK for seven out of the last ten tax years, will generally not be subject to the UK inheritance tax on the individual’s death nor on a chargeable gift of the Ordinary Shares or ADSs during the individual’s lifetime provided that any applicable US federal gift or estate tax liability is paid, unless the Ordinary Shares or ADSs are part of the business property of a permanent establishment of the individual in the UK or, in the case of a shareholder who performs independent personal services, pertain to a fixed base situated in the UK.
Where the Ordinary Shares or ADSs have been placed in trust by a settlor who, at the time of settlement, was a US resident shareholder, the Ordinary Shares or ADSs will generally not be subject to UK inheritance tax unless the settlor, at the time of settlement, was not domiciled in the US or was a UK national. In the exceptional case where the Ordinary Shares or ADSs are subject both to UK inheritance tax and to US federal gift or estate tax, the Estate Tax Convention generally provides for double taxation to be relieved by means of credit relief.
