Summary of the tax implications for U.S. shareholders
NOTE: When we first announced the BCE/Nortel transaction in January 2000, we began a communications program to remind holders of BCE common shares, who would later be asked to approve the distribution, of the tax consequences to both Canadian and U.S. shareholders. BCE went beyond standard legal practices in this regard. Press releases, the Joint Arrangement Circular sent to all shareholders as well as a letter determining the cost base allocation of the transaction repeatedly reminded shareholders of the tax consequences described below. Shareholders were urged to consult their tax advisors.
A BCE shareholder that is a U.S. taxpayer will be required to treat this distribution as a taxable dividend according to U.S. tax laws. The dividend will be equal to the fair market value of the Nortel Networks common shares on May 1, 2000, the effective date of the Arrangement.
U.S. tax laws do not prescribe any specific method for determining fair market value, however, one acceptable alternative is to use the average high and low prices for Nortel Networks common shares on the effective date. Based on information from the New York Stock Exchange, the high and low for a whole Nortel Networks common share on May 1, 2000 were U.S.$120.25 and U.S.$114.50 per share respectively, before taking into account Nortel Networks' 2-for-1 stock split.
Your tax basis for Nortel Networks common shares will also equal this fair market value. No change should be made in the tax basis of your BCE shares.
It should be noted that the above discussion is not binding upon the United States Internal Revenue Service and shareholders (including shareholders who seek to utilize a date other than the effective date of the Arrangement or who have special facts) are urged to consult their own tax advisors.