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«Carrera Capital Finance Limited (incorporated with limited liability in Jersey) and Carrera Capital Finance LLC (organized with limited liability in ...»

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If a Priority Note that is issued with OID has an issue price less than its principal amount, then the Priority Note may be subject to an income accrual method applicable to debt instruments whose payments are subject to acceleration (prescribed by section 1272(a)(6) of the Code) using an assumption as to the expected prepayments on such Priority Notes as a result of prepayments of the Issuer's investments (the "PAC Method"). The OID Regulations do not, however, provide sufficient rules to determine accruals of OID on such Priority Notes if the timing of principal payments on such Priority Notes could not be determined as of their issue date. In the absence of definitive guidance, the Issuer will treat any Priority Notes issued with OID whose principal payments are contingent as to time as subject to an income accrual method analogous to the PAC Method and the method applicable to debt instruments having payments that are contingent as to amount but not as to time. Under such method, the assumption as to expected prepayments on such Priority Notes would be reflected on a projected payment schedule prepared by the Issuer. The projected payment schedule will be utilized solely to determine the amount of OID to be included in income annually by U.S. Holders of such Priority Notes. As such, the calculation of the projected payment schedule would be based on a number of assumptions and estimates and is not a prediction of the actual amounts of payments on the such Priority Notes or of the actual yield of the such Priority Notes. In any case, however, the Issuer's determination would not be binding on the IRS.

Special rules may apply for purposes of determining whether Priority Notes are issued with OID if such Priority Notes have a method of calculating interest that varies between the issue date and the maturity date of the relevant Series. For example, if interest is calculated at more than one Fixed Rate during different periods of time, interest in excess of the lowest of such Fixed Rates is generally required to be added to the SRPM of such Priority Notes. Any special rules for determining OID on a Priority Note that provides for interest determined on the basis of two or more Floating Rates or one or more Fixed Rates and one or more Floating Rates will be described in the applicable Final Terms.

In the case of a Priority Note issued with OID that is also a Foreign Currency Note, a U.S. Holder should determine the U.S. dollar amount includible in income as OID for each accrual period by (a) calculating the amount of OID allocable to each accrual period in the Specified Currency using the constant-yield method described above, and (b) translating the amount of the Specified Currency so derived at the average exchange rate in effect during that accrual period (or portion thereof within a U.S. Holder's taxable year) or, at the U.S. Holder's election (as described above under "—Payments of Interest"), at the spot rate of exchange on the last day of the accrual period (or the last day of the U.S.

Holder's taxable year within such accrual period if the accrual period spans more than one taxable year), or at the spot rate of exchange on the date of receipt, if such date is within five business days of the last day of the accrual period. Because exchange rates may fluctuate, a U.S. Holder of a Priority Note issued with OID that is also a Foreign Currency Note may recognize a different amount of OID income in each accrual period than would the holder of an otherwise similar Priority Note denominated in U.S. dollars. Upon the receipt of an amount attributable to OID (whether in connection with a payment of an amount that is not treated as unconditionally payable or the sale or retirement of the Priority Note), a U.S. Holder will recognize ordinary income or loss measured by the difference between the amount received (translated into U.S. dollars at the exchange rate in effect on the date of receipt or on the date of disposition of the Priority Note, as the case may be) and the amount accrued (using the exchange rate applicable to such previous accrual).

Short-Term Priority Notes. The rules set forth above will also generally apply to Priority Notes having maturities of not more than one year ("Short-Term Priority Notes"), but with certain modifications described below.

First, the OID Regulations treat none of the interest on a Short-Term Priority Note as interest that is unconditionally payable (but instead treat such interest payments as part of the Short-Term Priority Note's stated redemption price at maturity, thereby giving rise to OID). Thus, all Short-Term Priority Notes will be treated as Priority Notes issued with OID. OID will be treated as accruing on a ShortTerm Priority Note ratably, or at the election of a U.S. Holder, under a constant yield method.

Second, a U.S. Holder of a Short-Term Priority Note that uses the cash method of tax accounting and is not a bank, securities dealer, regulated investment company or common trust fund, and does not identify the Short-Term Priority Note as part of a hedging transaction, will generally not be required to include OID in income on a current basis. Such a U.S. Holder may not be allowed to deduct all of the interest paid or accrued on any indebtedness incurred or maintained to purchase or carry such Short-Term Priority Note until the Stated Maturity of the Short-Term Priority Note or its earlier disposition in a taxable transaction. In addition, such a U.S. Holder will be required to treat any gain realised on a sale, exchange or retirement of the Short-Term Priority Note as ordinary income to the extent such gain does not exceed the OID accrued with respect to the Short-Term Priority Note during the period the U.S. Holder held the Short-Term Priority Note. Notwithstanding the foregoing, a cashbasis U.S. Holder of a Short-Term Priority Note may elect to accrue OID in income on a current basis (in which case the limitation on the deductibility of interest described above will not apply). A U.S.





Holder using the accrual method of tax accounting and certain cash-basis U.S. Holders (including banks, securities dealers, regulated investment companies and common trust funds) generally will be required to include OID on a Short-Term Priority Note in income on a current basis.

Third, any U.S. holder (whether cash or accrual basis) of a Short-Term Priority Note can elect to accrue the "acquisition discount," if any, with respect to the Short-Term Priority Note on a current basis. If such an election is made, the OID rules will not apply to the Short-Term Priority Note.

Acquisition discount is the excess of the remaining redemption amount of the Short-Term Priority Note at the time of acquisition over the purchase price. Acquisition discount will be treated as accruing ratably or, at the election of the U.S. holder, under a constant-yield method based on daily compounding.

Sale or Disposition of the Notes. In general, a U.S. Holder of a Priority Note will have a basis in such Priority Note equal to the cost of the Priority Note to such U.S. Holder, increased by any amount includible in income by such U.S. Holder as OID and reduced by any payments of principal or interest on its Priority Note (other than payments of stated interest that are not required to be included in the SRPM of such Priority Note). In the case of a Foreign Currency Note, the cost of such Priority Note to a U.S. Holder will be the U.S. dollar value of the Specified Currency purchase price on the date of purchase. In the case of a Foreign Currency Note that is traded on an established securities market, a cash basis U.S. Holder (and, if it so elects, an accrual basis U.S. Holder) will determine the U.S.

dollar value of the cost of such Foreign Currency Note by translating the amount paid at the spot rate of exchange on the settlement date of the purchase. The conversion of U.S. dollars to a Specified Currency and the immediate use of the Specified Currency to purchase a Foreign Currency Note generally will not result in taxable gain or loss for a U.S. Holder.

Upon the sale, exchange or retirement of a Priority Note, a U.S. Holder will recognize taxable gain or loss, if any, generally equal to the difference between the amount realised on the sale, exchange or retirement (other than accrued stated interest, which interest will be taxable as such) and such U.S.

Holder's adjusted tax basis in such Priority Note. If a U.S. Holder receives a Specified Currency other than the U.S. dollar in respect of the sale, exchange or retirement of a Priority Note, the amount realised will be the U.S. dollar value of the Specified Currency received calculated at the exchange rate in effect on the date the instrument is disposed of or retired. In the case of a Foreign Currency Note that is traded on an established securities market, a cash basis U.S. Holder, and if it so elects, an accrual basis U.S. Holder will determine the U.S. dollar value of the amount realised by translating such amount at the spot rate on the settlement date of the sale. The election available to accrual basis U.S. Holders in respect of the purchase and sale of Foreign Currency Notes traded on an established securities market, discussed above, must be applied consistently to all debt instruments from year to year and cannot be changed without the consent of the IRS.

Except as discussed above with respect to Short-Term Priority Notes and below with respect to foreign currency gain or loss, any gain or loss upon the sale, exchange or retirement of a Priority Note will generally be long-term capital gain or loss; provided, that such Priority Note was a capital asset in the hands of the U.S. Holder and had been held for the requisite period. In certain circumstances, U.S. Holders that are individuals may be entitled to preferential treatment for net long-term capital gains; however, the ability of U.S. Holders to offset capital losses against ordinary income is limited.

Gain or loss recognized by a U.S. Holder on the sale, exchange or retirement of a Foreign Currency Note generally will be treated as ordinary income or loss to the extent that the gain or loss is attributable to changes in exchange rates during the period in which the holder held such Foreign Currency Note. This foreign currency gain or loss will not be treated as an adjustment to interest income received on the Foreign Currency Note.

U.S. Tax Treatment of U.S. Holders of Capital Notes Status of the Capital Notes. For the purposes of Jersey law, the Capital Notes will be characterized as debt of the Issuer. Under U.S. federal income tax principles, however, a strong likelihood exists that the Capital Notes would be treated as equity of the Issuer for U.S. federal income tax purposes and that the U.S. Holders will be treated as shareholders in the Issuer. The Issuer, and each holder of a Capital Note, by acquiring a beneficial interest therein, will agree to treat such Capital Note as equity of the Issuer for U.S. federal income tax purposes. Except as otherwise indicated, this summary also assumes the such treatment is correct. No assurance can be given, however, that the IRS will respect this position in light of the Capital Notes' form and their status as debt for purposes of Jersey law.

In general, the timing and character of income recognized with respect to the Capital Notes may differ substantially based on whether the Capital Notes are treated for federal income tax purposes as debt instruments or as equity of the Issuer. Investors should consider the tax consequences of any investment in the Capital Notes under either possible characterization and should consult their tax advisors regarding treatment of the Capital Notes on their tax returns.

Investment in a Passive Foreign Investment Company. The Issuer will constitute a "passive foreign investment company" (a "PFIC") for U.S. federal income tax purposes. Accordingly, U.S. Holders of the Capital Notes (other than certain U.S. Holders that are subject to the rules pertaining to a "controlled foreign corporation" described below) will be considered shareholders of a PFIC.

In general, a U.S. Holder may desire to make an election to treat the Issuer as a "qualified electing fund" ("QEF") with respect to such U.S. Holder in order to avoid the application of certain potentially adverse U.S. tax rules (discussed below) applicable to ownership of PFIC equity interests by U.S. persons. Generally, a QEF election should be made with the filing of a U.S. Holder's federal income tax return for the first taxable year for which it holds Capital Notes. If a timely QEF election is made, an electing U.S. Holder would be required to include in gross income such holder's pro rata share of the Issuer's ordinary earnings, and as long-term capital gain such holder's pro rata share of the Issuer's net capital gain, whether or not distributed, assuming that the Issuer does not constitute a controlled foreign corporation with respect to which the holder is treated as a "U.S. Shareholder" as discussed further below. It is unclear how an obligor who has issued multiple equity instruments, the payments on which are tied solely to discreet pools of the obligor's assets, should calculate the pro rata share of its ordinary earnings and net capital gain attributable to ownership of each such equity instrument, and U.S. Holders are urged to consult their own tax advisors in this regard. Nonetheless, it should be expected that an electing U.S. Holder may recognize income in a taxable year in amounts greater than the distributions received from the Issuer on such Capital Notes in such taxable year, particularly if the Issuer's investments include debt instruments that are treated for U.S. tax purposes as issued with original issue discount or otherwise are of a character that produce income for U.S.

federal income tax purposes prior to the receipt of cash attributable to such income. In certain cases in which a QEF does not distribute all of its earnings in a taxable year, U.S. Holders may also be permitted to elect to defer payment of some or all of the taxes on the QEF's income subject to an interest charge on the deferred amount.

The Issuer will provide, upon request, all information and documentation that a U.S. Holder making a QEF election is required to obtain for U.S. federal income tax purposes (e.g., the Issuer's determination of the U.S. Holder's pro rata share of ordinary income and net capital gain or information sufficient to permit the U.S. Holder to make such determination, and a "PFIC Annual Information Statement," as described in Treasury regulations).



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