benefits of such treaty and the dividends are not effectively
connected with a permanent establishment or fixed base of
such U.S. Holder that is situated in the Netherlands.
For purposes of calculating the U.S. foreign tax credit,
dividends paid by us will generally constitute passive
income, or in the case of certain U.S. Holders, financial
services income. U.S. Holders should note, however, that
the "financial services income" category will be eliminated
for taxable years beginning after December 31, 2006, and
the foreign tax credit limitation categories after such time
will be limited to "passive category income" and "general
category income." U.S. Holders should consult their tax
advisors regarding the availability of, and limitations on,
any such foreign tax credit.
If and to the extent that we pay a dividend on the common
shares or ADSs out of dividend income from our non-Dutch
subsidiaries and are therefore entitled to a credit for Dutch
tax purposes for foreign taxes attributable to such dividend
income from non-Dutch subsidiaries, there is a risk that the
U.S. Internal Revenue Service might take the position that
our allowable credit for Dutch tax purposes constitutes a
partial subsidy of our withholding tax obligation and that,
therefore, a U.S. Holder would not be entitled to a foreign
tax credit with respect to the amount so allowed. However,
this Dutch tax credit is available only to us and does not
reduce the amount of withholding tax applied against the
dividends paid by us. We believe that such a position would
not be correct because such Dutch credit is based primarily
on the net dividend received and the U.S. Holder does not
receive any benefit from such Dutch tax credit available
to us.
Subject to the discussion under "Backup Withholding Tax
and Information Reporting Requirements" below in this
section, a Non-U.S. Holder of common shares or ADSs
generally will not be subject to U.S. federal income or
withholding tax on dividends received on common shares or
ADSs, unless such income is effectively connected with the
conduct by such Non-U.S. Holder of a trade or business in
the U.S.
Sale or exchange of common shares or ADSs
A U.S. Holder generally will recognize gain or loss on the
sale or exchange of common shares or ADSs equal to the
difference between the amount realized on such sale or
exchange and the U.S. Holder's adjusted tax basis in the
common shares or ADSs. Such gain or loss will be capital
gain or loss. In the case of a non-corporate U.S. Holder, the
maximum marginal U.S. federal income tax rate applicable
to such gain will be lower than the maximum marginal U.S.
federal income tax rate applicable to ordinary income (other
than certain dividends) if such U.S. Holder's holding period
for such common shares or ADSs exceeds one year. Gain or
loss, if any, recognized by a U.S. Holder generally will be
treated as U.S. source income or loss for U.S. foreign tax
credit purposes. The deductibility of capital losses is subject
to limitations.
A U.S. Holder's initial tax basis in common shares or ADSs
will be the U.S. dollar value of the euro denominated
purchase price determined on the date of purchase. If the
common shares or ADSs are treated as traded on an
"established securities market," a cash basis U.S. Holder,
or, if it elects, an accrual basis U.S. Holder, will determine
the dollar value of the cost of such common shares or ADSs
by translating the amount paid at the spot rate of exchange
on the settlement date of the purchase. If a U.S. Holder
converts U.S. dollars to euros and immediately uses that
currency to purchase common shares or ADSs, such
conversion generally will not result in taxable gain or loss to
such U.S. Holder.
With respect to the sale or exchange of common shares or
ADSs, the amount realized generally will be the U.S. dollar
value of the payment received determined on (1) the date of
receipt of payment in the case of a cash basis U.S. Holder
and (2) the date of disposition in the case of an accrual
basis U.S. Holder. If the common shares or ADSs are treated
as traded on an "established securities market," a cash
basis taxpayer, or, if he/she elects, an accrual basis
taxpayer, will determine the U.S. dollar value of the amount
realized by translating the amount received at the spot rate
of exchange on the settlement date of the sale. Subject to
the discussion under "Backup Withholding Tax and
Information Reporting Requirements" below in this section,
a Non-U.S. Holder of common shares or ADSs generally will
not be subject to U.S. federal income or withholding tax on
any gain realized on the sale or exchange of such common
shares or ADSs unless (1) such gain is effectively connected
with the conduct by such Non- U.S. Holder of a trade or
business in the U.S. or (2) in the case of any gain realized
by an individual Non-U.S. Holder, such holder is present in
the U.S. for 183 days or more in the taxable year of such
sale or exchange and certain other conditions are met.
AHOLD ANNUAL REPORT 2005 233
