Scheme Circular - Rolls-Royce

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Holder. It does not consider the circumstances of holders subject to special tax regimes, such as banks, insurance companies, regulated investment companies, dealers, traders in securities that elect mark-to-market treatment, insurance companies, tax-exempt entities or persons holding shares or ADRs as part of a hedge, straddle, conversion or other integrated financial transaction. It does not address persons resident or ordinarily resident in the United Kingdom and persons holding shares or ADRs through a permanent establishment or fixed base outside the United States. It does not consider consequences for persons that own (or are deemed to own) 10 per cent or more (by voting power) of shares of Rolls-Royce Group or that will own (or be deemed to own) five per cent or more (by voting power or value) of the shares of Rolls-Royce Holdings. It does not address US state or local tax considerations. The summary is not a substitute for tax advice. Rolls-Royce Holdings believes and this summary assumes that it is not and is not likely to become a passive foreign investment company (PFIC) for US federal income tax purposes. Rolls-Royce Holdings’ status as a PFIC must be determined annually, and it therefore could change. If Rolls-Royce Holdings were to be a PFIC in any year, US Holders could suffer material adverse tax consequences. THE STATEMENTS ABOUT U.S. FEDERAL INCOME TAX MATTERS IN THIS DOCUMENT ARE MADE TO SUPPORT THE SCHEME AND THE ADMISSION OF THE ROLLS-ROYCE HOLDINGS ORDINARY SHARES TO THE OFFICIAL LIST. NO TAXPAYER CAN RELY ON THEM TO AVOID US FEDERAL TAX PENALTIES. EACH SHAREHOLDER OR ADR HOLDER SHOULD SEEK ADVICE FROM ITS OWN TAX ADVISER ABOUT THE TAX CONSEQUENCES TO IT OF PARTICIPATING IN THE SCHEME AND HOLDING ROLLS-ROYCE HOLDINGS ORDINARY SHARES OR ROLLS-ROYCE ADRs UNDER THE LAWS OF THE UNITED KINGDOM, THE UNITED STATES AND THEIR CONSTITUENT JURISDICTIONS AND ANY OTHER JURISDICTION WHERE THE PURCHASER MAY BE SUBJECT TO TAXATION. As used here, “US Holder” means a beneficial owner of shares or ADRs that for US federal income tax purposes is (i) an individual citizen or resident of the United States, (ii) a corporation or other business entity organised in or under the laws of the United States or its political subdivisions, (iii) a trust subject to the control of a US person and the primary supervision of a US court or (iv) an estate the income of which is subject to US federal income taxation regardless of its source. The US federal tax consequences to a partner in a partnership generally will depend on the status of the partner and the activities of the partnership. US Holders that are partnerships are urged to consult their own tax advisers about the tax consequences to their partners of receiving Rolls-Royce Holdings Ordinary Shares in connection with the Scheme and owning and disposing of Rolls-Royce Holdings Ordinary Shares or ADRs. Holders of ADRs generally will be treated for US federal income tax purposes as holding the shares represented by the ADRs. The substitution of Rolls-Royce Holdings Ordinary Shares for Rolls-Royce Group Ordinary Shares held by the US Depositary as part of the Scheme will be treated as an exchange by holders of Rolls-Royce ADRs of Rolls-Royce Group Ordinary Shares for Rolls-Royce Holdings Ordinary Shares subject to the treatment described below even though holders of Rolls-Royce ADRs will continue to hold the same instruments after implementation of the Scheme. After the implementation of the Scheme, no gain or loss will be recognised upon the exchange of Rolls-Royce ADRs for Rolls-Royce Holdings Ordinary Shares as long as the US Depositary has not taken any action inconsistent with either the material terms of the deposit agreement or the US Holder’s ownership of the underlying shares. Share Exchange in the Scheme Rolls-Royce Group and Rolls-Royce Holdings intend to treat the Scheme as a tax-free reorganisation for US federal income tax purposes under section 368(a) of the US Internal Revenue Code. The proper US federal income treatment of the Scheme is not certain, however, and neither Rolls- Royce Group nor Rolls-Royce Holdings has sought a ruling from US tax authorities or an opinion from US tax counsel on the proper treatment of the Scheme. Although the summary in this section assumes that the Scheme constitutes a tax-free reorganisation, each Holder should consult its own tax adviser about the proper US federal, state and local income tax treatment of the Scheme. Assuming that the Scheme is a tax-free reorganisation, a US Holder will recognise no gain or loss on exchange of Rolls-Royce Group Ordinary Shares for Rolls-Royce Holdings Ordinary Shares. A US Holder’s basis in Rolls-Royce Holdings Ordinary Shares will equal its aggregate adjusted tax basis in the Rolls-Royce Group Ordinary Shares exchanged, and its holding period in the Rolls-Royce Holdings Ordinary Shares will include the period it held the Rolls-Royce Group Ordinary Shares. If a US Holder acquired different blocks of Rolls-Royce Group Ordinary Shares at different times or at different prices, the US Holder’s basis and holding period in the Rolls-Royce Holdings Ordinary Shares will be determined separately for each block of shares. A US Holder may be required to attach to its tax return for the year in which it receives Rolls-Royce Holdings Ordinary Shares a statement regarding application of the tax-free reorganisation requirements (including information about the Rolls-Royce Group Ordinary Shares it exchanged and the Rolls-Royce Holdings Ordinary Shares it received) and to maintain certain records regarding the Scheme. If the Scheme were not a tax-free reorganisation, a US Holder receiving Rolls-Royce Holdings Ordinary Shares in exchange for Rolls-Royce Group Ordinary Shares would recognise capital gain or loss equal to the difference between (x) the fair market value of the Rolls-Royce Holdings Ordinary Shares as of the effective date of the exchange and (y) its adjusted tax basis in the Rolls-Royce Group Ordinary Shares exchanged. Any gain would be long-term gain if the US Holder held the Rolls-Royce Group Ordinary Shares for more than one year. Any loss would be long-term loss if the US Holder held the Rolls-Royce Group Ordinary Shares for more than one year or to the extent the US Holder previously received qualified dividend income in excess of 10 per cent of the US Holder’s basis in its Rolls-Royce Group Ordinary Shares. Deductions for capital losses are subject to limitations. Any gain or loss generally would be treated as arising from US sources. The holder would have a tax basis in the Rolls-Royce Holdings Ordinary Shares 32
equal to their fair market value as of the effective date of the exchange and a holding period for the Rolls-Royce Holdings Ordinary Shares beginning on the day following the exchange date. Dividends US Holders generally must include any dividends paid on Rolls-Royce Holdings Ordinary Shares in their gross income as ordinary income from foreign sources. Payments made to shareholders through the issue of C Shares will be treated like cash dividends of the amount for which they can be redeemed because shareholders can elect prompt cash redemption. A US Holder that does not elect to have C Shares promptly redeemed for cash will have a tax basis in the C Shares equal to the amount of the dividend. Dividends will not be eligible for the dividends-received deduction generally available to corporations. Dividends received before 2013 should, however, be eligible for the reduced rate on qualified dividend income available to non-corporate US Holders who meet certain holding period and other requirements if Rolls-Royce Holdings qualifies for benefits under the income tax treaty between the United Kingdom and the United States. Rolls-Royce Holdings expects to qualify for benefits under that treaty. In computing its foreign tax credit limitation, a non-corporate US Holder that receives a dividend taxed at the reduced rate for qualified dividend income may take into account only the portion of the dividend effectively taxed at the highest applicable marginal rate. US Holders that receive dividends in a currency other than US dollars must include in income a US dollar amount determined at the spot rate on the date of receipt whether or not they convert the currency into US dollars at that time. A US Holder will have a basis in the non-US currency received equal to its US dollar value on the date of receipt. Gain or loss on a subsequent conversion or other disposition of the non-US currency for a different US dollar amount generally will be treated as ordinary income or loss from sources within the United States for foreign tax credit limitation purposes. A US Holder that does not elect to have C Shares promptly redeemed for cash may be treated as receiving an additional dividend upon subsequent redemption of the C Shares in an amount equal to the redemption proceeds (converted into US dollars at the spot rate on the date of receipt) unless the redemption results in a meaningful reduction of the holder’s proportionate interest in the Company. If redemption proceeds are treated as a dividend, the US Holder’s tax basis in the redeemed C Shares will be added to its tax basis in its remaining shares pro rata according to their relative fair market values. If the redemption does result in a meaningful reduction of the US Holder’s interest in the Company, the redemption will be treated as a disposition of the C Shares redeemed (see “Dispositions” below). Whether redemption of C Shares is treated as a dividend or as a sale of the C Shares depends on a number of factors, some of which the Company may not be able to determine. US Holders are urged to consult their own tax advisers regarding the specific tax consequences of tendering issued and outstanding C Shares for redemption. Dispositions US Holders generally will recognise capital gain or loss on the sale or other disposition of Rolls-Royce Holdings Ordinary Shares in an amount equal to the difference between their adjusted tax basis in the shares and the US dollar value of the amount realised. Any gain will be long-term gain if the US Holder has held the Rolls-Royce Group Ordinary Shares and the Rolls-Royce Holdings Ordinary Shares for a combined period longer than one year. Any loss will be long-term loss if the US Holder has held the Rolls-Royce Group Ordinary Shares and the Rolls-Royce Holdings Ordinary Shares for a combined period longer than one year or to the extent the US Holder previously received qualifying dividend income in excess of 10 per cent of the US Holder’s basis in its Rolls-Royce Holdings Ordinary Shares. Deductions for capital losses are subject to limitations. Any gain or loss generally will be treated as arising from US sources. A US Holder that receives a currency other than US dollars in exchange for its shares will realise an amount equal to the US dollar value of the currency received at the spot rate on the date of disposition (or, if the shares are traded on an established securities market and a US Holder is a cash-basis or electing accrual basis taxpayer, at the spot rate on the settlement date). A US Holder will have a tax basis in the currency received equal to the US dollar value of the currency on the settlement date. Any currency gain or loss realised on the settlement date or on a subsequent conversion or other disposition of the currency for a different US dollar amount generally will be US source ordinary income or loss. Reporting and Backup Withholding Dividends on the Rolls-Royce Holdings Ordinary Shares or Rolls-Royce ADRs and proceeds from the disposition of those shares may be reported to the US Internal Revenue Service unless the holder is a corporation or otherwise establishes a basis for exemption. Backup withholding tax may apply to amounts subject to reporting if the holder fails to provide an accurate taxpayer identification number or to meet other conditions. The amount of any backup withholding tax may be credited against or refunded to the extent it exceeds the holder’s US federal income tax liability. A US Holder (including a holder of ADRs) may be required specifically to report the receipt (directly or indirectly through the US Depositary) of Rolls- Royce Holdings Ordinary Shares in the Scheme. A US Holder also may be required specifically to report a sale or other taxable disposition of the Rolls- Royce Group Ordinary Shares, Rolls-Royce Holdings Ordinary Shares or Rolls-Royce ADRs to the US Internal Revenue Service if it recognises a foreign currency or other loss from a single transaction that exceeds, in the case of an individual or trust, $50,000 in a single taxable year or, in other cases, various higher thresholds. US Holders should consult their tax advisors about these possible reporting requirements. Recently enacted legislation requires certain US Holders to report information with respect to their investment in the Rolls-Royce Holdings Ordinary Shares or Rolls-Royce ADRs not held through an account with a financial institution to the US Internal Revenue Service. Holders who fail to report required information could become subject to substantial penalties. Holders are encouraged to consult with their own tax advisors about information reporting requirements with respect to their investment in the shares or ADRs. 33
Page 1 and 2: THIS DOCUMENT IS IMPORTANT AND REQU
Page 3 and 4: The Rolls-Royce Holdings Ordinary S
Page 5 and 6: Rounding Some financial and other n
Page 7 and 8: EXPECTED TIMETABLE OF PRINCIPAL EVE
Page 9 and 10: 1. WH AT IS BEING PROPOSED? It is p
Page 11 and 12: 16. WHERE CAN I FIND MORE INFORMATI
Page 13 and 14: Following the Scheme Effective Time
Page 15 and 16: (c) instead of having its ordinary
Page 17 and 18: 6. THE ROLLS-ROYCE HOLDINGS REDUCTI
Page 19 and 20: Overseas Shareholders should consul
Page 21 and 22: (c) (d) (e) the maximum nominal amo
Page 23 and 24: 20. ACTION TO BE TAKEN Rolls-Royce
Page 25 and 26: 4.2 As at 10 March 2011 (being the
Page 27 and 28: 7.2 Non-Exec utive Directors Non-Ex
Page 29 and 30: US Shareholders should note that no
Page 31: For CGT purposes, the allotment and
Page 35 and 36: 14.5 Deferred Share Plan Since the
Page 37 and 38: PART IV SCHEME OF ARRANGEMENT IN TH
Page 39 and 40: Rolls-Royce Holdings Rolls-Royce Ho
Page 41 and 42: any such sale, the person so appoin
Page 43 and 44: PART V DEFINITIONS AND GLOSSARY The
Page 45 and 46: London time Meetings members New Sh
Page 47 and 48: Scheme Shareholder Scheme Shares a
Page 49 and 50: PART VI NOTICES OF MEETINGS NOTICE
Page 51 and 52: NOTICE OF ANNUAL GENERAL MEETING Th
Page 53 and 54: Resolution 20 - Renewal of the Roll
Page 55 and 56: “218 Shares not otherwise subject
Page 57 and 58: Notes to the Notice of Annual Gener
Page 59 and 60: Appointment of a proxy does not pre
Page 61 and 62: Publication of audit concerns on ou
Page 63 and 64: Resolution 18 refers to the resolut
Page 65 and 66: As in previous years, Resolution 26
Page 67 and 68: APPENDIX 1 Resolution 20: Rolls-Roy
Page 69 and 70: APPENDIX 2 Resolution 21: Rolls-Roy
Page 71: APPENDIX 3 Resolution 22: Rolls-Roy

Scheme Circular - Rolls-Royce

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