Any distributions paid on Pentair plc ordinary shares will constitute dividends for U.S. federal income tax purposes to the extent such distributions are made out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution paid to a U.S. Holder on an ordinary share exceeds our current and accumulated earnings and profits attributable to that share, the excess will be treated as a tax-free return of capital, up to the U.S. Holder’s adjusted tax basis in that share. Any remaining excess will be treated as capital gain, subject to the tax treatment described below in “Gains on Disposition.”
In the case of a U.S. Holder that is an individual, trust, or estate, a dividend received by such a U.S. Holder on Pentair plc ordinary shares generally will constitute “qualified dividend income,” provided that (i) Pentair plc’s ordinary shares are listed on the NYSE or certain other exchanges, or Pentair plc qualifies for benefits under the income tax treaty between the U.S. and the U.K., and (ii) during the taxable year in which the dividend is paid and the preceding taxable year, Pentair plc is not treated as a passive foreign investment company. A dividend that constitutes “qualified dividend income” will be subject to a reduced maximum U.S. federal income tax rate of 20%. This rate reduction will not apply to dividends received to the extent that the U.S. Holder elects to treat the dividends as “investment income” for purposes of calculating the U.S. Holder’s limitation on the deduction of “investment interest” expense. Furthermore, this rate reduction will not apply unless the U.S. Holder meets certain holding period requirements with respect to its Pentair plc ordinary shares.
Dividends paid on Pentair plc ordinary shares to a U.S. Holder that is classified for U.S. federal income tax purposes as a corporation generally will not be eligible for the dividends-received deduction.
For purposes of calculating the foreign tax credit, dividends paid on Pentair plc ordinary shares generally will be treated as income from sources outside the United States.
A dividend paid on Pentair plc ordinary shares in a currency other than U.S. dollars will be includible in the income of a U.S. Holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the dividend is received by the U.S. Holder. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend is includible in the income of the U.S. Holder to the date that payment is converted into U.S. dollars generally will be treated as ordinary income or loss.
Gains on Disposition. Upon a sale or other taxable disposition of Pentair plc ordinary shares, a U.S. Holder will recognize gain or loss equal to the difference, if any, between the amount received and the U.S. Holder’s adjusted tax basis in the ordinary shares, and any such gain or loss will constitute capital gain or loss. A capital gain recognized by an individual upon the sale or other disposition of a Pentair plc ordinary share is generally eligible for reduced rates of U.S. federal income taxation if the holding period for such share is greater than one year. The deductibility of a capital loss recognized upon
the sale or other disposition of a Pentair plc ordinary share is subject to limitations.
To comply with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained herein, unless specifically stated otherwise, is not intended or written to be used, and cannot be used, for the purposes of (i) avoiding penalties under the Internal Revenue Code of 1986, as amended, or (ii) promoting, marketing, or recommending to another party any transaction or matter herein.