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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 U.S. Holder (other than certain U.S. Holders that are subject to the rules pertaining to a controlled foreign corporation described below) does not make a timely QEF election, a U.S. Holder that has held Capital Notes during more than one taxable year would generally be required to report any gain on disposition (including redemption) of any Capital Notes as ordinary income, rather than capital gain, and to compute the tax liability on such gain and any "excess distribution" received in respect of the Capital Notes as if such items had been earned ratably over each day in the U.S. Holder's holding period (or a certain portion thereof) for the Capital Notes. The U.S. Holder will be subject to tax on such items at the highest ordinary income tax rate for each taxable year, other than the current year of the U.S. Holder, in which the items were treated as having been earned, regardless of the rate otherwise applicable to the U.S. Holder. Further, such U.S. Holder will also be liable for an additional tax equal to interest on the tax liability attributable to income allocated to prior years as if such liability had been due with respect to each such prior year. For purposes of these rules, gifts, exchanges pursuant to corporate reorganizations and use of the Capital Notes as security for a loan may be treated as a taxable disposition of such Capital Notes. An "excess distribution" is the amount by which distributions (including dividend and redemption proceeds) during a taxable year in respect of a Capital Note exceed 125 percent of the average amount of distributions (including dividend and redemption proceeds) in respect thereof during the three preceding taxable years (or, if shorter, the U.S. Holder's holding period for the Capital Note). In addition, a stepped-up basis in the Capital Notes upon the death of an individual U.S. Holder may not be available. A U.S. Holder must file annually a Form 8621 with the IRS disclosing its interest in the Issuer.

U.S. HOLDERS OF CAPITAL NOTES SHOULD CONSIDER CAREFULLY WHETHER TO

MAKE A QEF ELECTION WITH RESPECT TO SUCH CAPITAL NOTES AND THE

POTENTIAL ADVERSE CONSEQUENCES OF NOT MAKING SUCH AN ELECTION.

Investment in a Controlled Foreign Corporation. The Issuer may be classified as a controlled foreign corporation ("CFC"). In general, a non-U.S. corporation will be classified as a CFC if more than 50% of the shares of the corporation, measured by reference to combined voting power or value, is owned (actually or constructively) by "U.S. Shareholders". A U.S. Shareholder, for this purpose, is any U.S.

person that possesses (actually or constructively) 10% or more of the combined voting power of all classes of shares of a corporation. It is possible that the IRS would assert that the Capital Notes are de facto voting securities and that U.S. Holders deemed to own under the applicable constructive ownership rules 10% or more of the sum of the aggregate outstanding amount of the interests in the Issuer are U.S. Shareholders. If this assertion prevailed and more than 50% of the interests in the Issuer (determined with respect to aggregate value or aggregate outstanding amount) are owned (actually or constructively) by such U.S. Shareholders, the Issuer would be treated as a CFC.

If the Issuer were treated as a CFC, a U.S. Holder that is treated as a U.S. Shareholder of the Issuer would be treated, subject to certain exceptions, as receiving a deemed dividend at the end of the taxable year of the Issuer in an amount equal to that person's pro rata share of the "subpart F income" of the Issuer. Among other items, and subject to certain exceptions, "subpart F income" includes dividends, interest, annuities, gains from the sale of shares and securities, certain gains from commodities transactions, certain types of insurance income and income from certain transactions with related parties. It is likely that, if the Issuer were to constitute a CFC, all, or almost all, of its income would be subpart F income. If more than 70% of the Issuer's income is Subpart F income, then 100% of its income will be so treated.

Further, if the Issuer were treated as a CFC, a U.S. Shareholder of the Issuer would be taxed on the subpart F income of the Issuer under rules described in the preceding paragraph and not under the PFIC rules previously described. As a result, to the extent subpart F income of the Issuer includes net capital gains, such gains would be treated as ordinary income of the U.S. Shareholder under the CFC rules, notwithstanding the fact that the character of such gains generally would otherwise be preserved under the PFIC rules if a QEF election were made. In general, a U.S. Holder that is not initially a U.S. Shareholder and that does not elect to treat the Issuer as a QEF but that subsequently becomes a U.S. Shareholder (e.g., as a result of increased overall ownership of Capital Notes by U.S. Holders or an increase in the holder's own Subordinated Note holdings) and therefore becomes thereafter subject to the CFC inclusion rules as described above would nevertheless also be required to treat the Issuer as a PFIC that was not QEF. In such case, for purposes of applying the deemed interest charge rules described above, the U.S. Holder would continue to treat the date on which it acquired the Capital Notes as the date on which its holding period began. If, however, the U.S. Holder had made the QEF election before becoming a U.S. Shareholder, such U.S. Holder would be treated as acquiring an interest in a QEF on the day following any later day on which it ceased to be a U.S. Shareholder but remained a U.S. Holder (e.g., if the holder disposes of some but not all of its Capital Notes, or changes in the overall ownership of Capital Notes by U.S. Holders result in termination of the Issuer's status as a CFC).





Similarly, if a U.S. Holder of Capital Notes constitutes a U.S. Shareholder at issuance but subsequently ceases to be a U.S. Shareholder while continuing to hold Capital Notes (e.g., as a result of changes in the holder's ownership of Capital Notes or in the status of the Issuer, as described above), then such U.S. Holder will be treated as acquiring an interest in a QEF as of the day following the date of cessation of the U.S. Holder's status as a U.S. Shareholder. Because such Capital Notes would thereafter be treated as equity in a PFIC, if there was no QEF election in effect with respect to the U.S. Holder's taxable year that includes the date of cessation of its status as a U.S. Shareholder, the U.S. Holder would become subject to the adverse rules applicable to non-QEF PFICs described above.

A Holder that is treated as a U.S. Shareholder under the CFC rules in the Issuer for only a portion of time in which it holds the Capital Notes should consult its tax advisor regarding the interaction of the PFIC and CFC rules in this regard with respect to the Issuer.

Except to the extent that distributions are attributable to amounts previously taxed pursuant to the CFC rules, some or all of any distributions with respect to the Capital Notes may constitute excess distributions, taxable as previously described. See "Investment in a Passive Foreign Investment Company" above.

Distributions on the Capital Notes. The treatment of actual distributions of cash on Capital Notes, in very general terms, will vary depending on whether a U.S. Holder has made a timely QEF election as described above. See "Investment in a Passive Foreign Investment Company" above. Notwithstanding the foregoing, a U.S. Holder that receives a distribution of amounts previously taxed under the CFC rules may recognize ordinary income or loss upon receipt of a distribution attributable to currency fluctuations, if such distribution is denominated in a Specified Currency other than the U.S. dollar.

Prospective U.S. Holders of Capital Notes denominated in a Specified Currency other than the U.S.

dollar are urged to consult with their tax advisors as to the federal income tax consequences of such investment.

Disposition of the Capital Notes. In general, and subject to the discussion below regarding U.S.

Holders that do not elect to make a timely QEF election, a U.S. Holder of a Capital Note will recognize gain or loss upon the sale or exchange of such Capital Note equal to the difference between the amount realised and such holder's adjusted tax basis in such Capital Note. Such gain or loss will be long-term capital gain or loss if the U.S. Holder has held the Capital Note for the requisite holding period at the time of the disposition. The tax basis of a U.S. Holder will generally equal the amount paid for a Capital Note. Such basis will be increased by amounts taxable to such holder by virtue of a QEF election or pursuant to the CFC rules, and decreased by actual distributions from the Issuer that are deemed to consist of such previously taxed amounts.

If a U.S. Holder does not make a timely QEF election as described above, any gain realised on the sale or exchange of a Capital Note (or any gain deemed to accrue prior to the time a non-timely QEF election is made) will be treated as an excess distribution, taxed as ordinary income and subject to an additional tax reflecting a deemed interest charge under the special tax rules described above. See "Investment in a Passive Foreign Investment Company" above. The above-described consequences may vary materially for a particular U.S. Holder to the extent the CFC rules have been or are applicable. For example, if the Issuer were treated as a CFC and a U.S. Holder were treated as a U.S.

Shareholder with respect to the Issuer, then any gain realised by such U.S. Holder upon the disposition of Capital Notes, other than gain constituting an excess distribution under the PFIC rules, if applicable, would be treated as ordinary income to the extent of the aggregate current and accumulated earnings and profits of the Issuer (if any). In this regard, earnings and profits would not include any amounts previously taxed pursuant to the CFC rules. As a result of this and other uncertainties regarding the U.S. federal income tax consequences to U.S. Holders of Capital Notes and the complexity of the foregoing rules, each U.S. Holder is urged to consult its own tax advisor regarding the U.S. federal income tax consequences of the U.S. Holder's investment in the Capital Notes.

Capital Notes Denominated in a Specified Currency other than the U.S. Dollar. A U.S. Holder that uses a Specified Currency other than the U.S. dollar to purchase a Capital Note denominated in that Specified Currency will recognize ordinary income or loss in an amount equal to the difference (if any) between the U.S. dollar value of the Specified Currency used to purchase the Capital Note determined at the spot rate of exchange in effect on the date of purchase of the Capital Note and such U.S. Holder's tax basis in the Specified Currency. A U.S. Holder will have an initial tax basis in a Capital Note denominated in a Specified Currency other than the U.S. dollar equal to the U.S. dollar value of the Specified Currency purchase price based on the spot rate of exchange in effect on the date of purchase. Such basis will be increased by amounts taxable to such U.S. Holder by reason of a QEF election, or by reason of the CFC rules, as applicable, and decreased by the U.S. dollar value of any Specified Currency paid by the Issuer (determined based on the spot rate of exchange on the date of the payment) that is deemed to consist of such previously taxed amounts or is treated as a non-taxable reduction to the U.S. Holder's tax basis for the Capital Note (as described above).

If the amount includable in the taxable income of a U.S. Holder as a result of a QEF election or by reason of the CFC rules is reported to a U.S. Holder in a Specified Currency other than the U.S.

dollar, the amount includable in taxable income (and the resulting tax basis increase) will be the U.S.

dollar equivalent of the average exchange rate for such Specified Currency during the tax year of the Issuer.

In addition, the amount of a payment in a Specified Currency other than the U.S. dollar in respect of a Capital Note will be the U.S. dollar value of the payment determined at the spot rate of the Specified Currency on the date such payment is received, regardless of whether the payment is in fact converted into U.S. dollars. A U.S. Holder will recognize foreign currency exchange gain or loss with respect to payments of amounts previously taxed to the holder (by reason of a QEF election or under the CFC rules) attributable to movements in exchange rates between the times of the related income inclusions and actual payments, and any such exchange gain or loss will be treated as ordinary income. A U.S.

Holder will have a basis in any Specified Currency distributed by the Issuer equal to the U.S. dollar value of the Specified Currency on the date it is received by the U.S. Holder. Generally, any gain or loss resulting from Specified Currency exchange rate fluctuations during the period from the date a payment is received to the date such payment is converted into U.S. dollars will be treated as ordinary income or loss.

U.S. Holders of Capital Notes denominated in a Specified Currency other than the U.S. dollar that receive Specified Currency upon the sale, redemption or other disposition of the Capital Notes will realize an amount equal to the U.S. dollar value of the Specified Currency on the date of the sale, redemption or other disposition (or, if the related Capital Notes are traded on an established securities market, in the case of a cash basis and electing accrual basis taxpayers, the settlement date). A U.S.

Holder will have a tax basis in the Specified Currency received equal to such U.S. dollar amount realised. Any gain or loss realised by a U.S. Holder upon a subsequent disposition of Specified Currency (including upon an exchange for U.S. dollars) will be ordinary income or loss.

Transfer Reporting Requirements



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