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1 Presenting a live 110 minute teleconference with interactive Q&ASection 163(j) Rules on Related Party interest DeductionsNavigating the Earnings Stripping Regulations and Form 8926 Compliance1pm Eastern | 12pm Central | 11am Mountain | 10am PacificWEDNESDAY, FEBRUARY 10, 2011 Today s faculty features:1pm Eastern | 12pm Central | 11am Mountain | 10am PacificMark Van Deusen Partner Hunton & WilliamsRichmond VaMark Van Deusen, Partner, Hunton & Williams,Richmond, Conklin, International Tax Director, PricewaterhouseCoopers, Washington, this program, attendees mustlisten to the audio over the refer to the instructions emailed to the registrant for the dial-in can still view the presentation slides online.

2 If you have any questions, pleasecontactCustomer Service at1-800-926-7926 ext. Education CreditsFOR LIVE EVENT ONLYA ttendees must listen to the audio over the telephone. Attendees can still view the presentation slides online but there is no online audio for this program. Please refer to the instructions emailed to the registrant for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 18009267926 ext. for Optimal QualitySd QlitSound QualityFor this program, you must listen via the telephone by dialing 1-866-258-2056 and entering your PIN when prompted. There will be no sound over the web ect o.

3 If you dialed in and have any difficulties during the call, press *0 for assistance. Yo u m a y a l s o send us a chator e-mail so we can address the QualityTo maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key againpress the F11 key 6(j) Rl RltdPt Sect. 163(j) Rules on Related Party interest Deductions WebinarFeb. 10, 2011 Susan Conklin, PricewaterhouseCoopersMarc Van Deusen, Hunton & d ay s ProgramReview Of Material Terms Of 163(j) RegsSlide 6 Slide 36[Marc Van Deusen]Earnings Stripping: Compliance Issues Practical ScenariosSlid 37 Slid 50 Earnings Stripping: Compliance Issues, Practical Scenarios[Susan Conklin]Slide 37 Slide 50 REVIEW OF MATERIAL TERMS Marc Van Deusen, Hunton & WilliamsREVIEW OF MATERIAL TERMS OF SECT.

4 163(j) REGSH istory, Purpose Of Sect. 163(j) Sect. 163(j) was enacted by the Omnibus Budget Reconciliation Act of 1989. Reconciliation Act of 1989. Intended to prevent erosion of the tax base by means of excessive deductions for interest paid by a taxable corporation to a tax-exempt (or partially tax-taxable corporation to a taxexempt (or partially taxexempt) related person Proposed regulations were issued in 1991 but never finalized Proposed regulations were issued in 1991 but never (j): The Basics Sect. 163(j) may limit deductions for any disqualified interest paid or accrued during the taxable year ( , interest id t ltd th t i t bj t t U S t )paid to a related person that is not subject to tax).

5 Amount disallowed will not exceed the excess interest expense. expense. Sect. 163(j) applies only if the ratio of debt-to-equity exceeds to 1 (the debt-to-equity safe harbor ).(qy)8 Key Definitions Disqualified interest Related person Excess interest expense Debt-to-equity safe harbor9 Disqualified interest Any interest paid to a related person if no tax imposed on such interest Any interest paid to a third party subject to a disqualified guarantee when no gross basis tax is imposed on h i ttsuch interest Any interest paid by a taxable REIT subsidiary to a real estate investment trust (REIT)estate investment trust (REIT)10 Definition Of Related Any relationship described in sections 267(b) or 707(b)(1), including.

6 Two corporations that are members of the same controlled group (i e (1) parent with at least a 50% direct or indirect group ( , (1) parent with at least a 50% direct or indirect ownership by vote or value in a subsidiary or (2) five or fewer individuals own, directly or indirectly, more than 50% of two corporations by vote or value)A corporation and a partnership if the same persons own A corporation and a partnership, if the same persons own more than 50% of the value of the outstanding stock of corporation and more than 50% of the capital or profits interests in the partnership%f A partnership and a person owning more than 50% of the capital or profits interest in the partnership Two partnerships in which the same persons own, directly or indirectly, more than 50% of the capital interests or y,50%ps sprofits interests11 Related Party.)

7 Partnerships Special rules for partnershipsppp interest accrued or paid to a partnership that is a related party is not disqualified interest if less than 10% of the profits andcapital interest in the partnership are held by t bj t t U S t (t t th tt th persons not subject to tax (except to the extent the interest allocable to a partner that is a related party ). When a partner benefits from a foreign tax treaty, the partner s interest in the partnership is treated in part as partner s interest in the partnership is treated in part as tax-exempt Party: interest Subject To Tax interest paid to a related party is disqualified only if the interest is not subject to tax.)

8 interest paid to a related foreign person will not be interest paid to a related foreign person will not be disqualified interest if it is subject to full 30% withholding Subject To Tax (Cont.) Pass-through entities Pass-through entities Determined at the partner level Similar rules for pass-through entities other than partnershipspartnerships How does a corporation apply this to a publicly traded mutual fund (regulated investment company) or REIT?REIT?14 interest Subject To Tax (Cont.) If a related person is a person entitled to treaty benefits, then only a portion of the interest is treated as not benefits, then only a portion of the interest is treated as not subject to tax.

9 Amount of interest that is treated as not subject to tax is based Amount of interest that is treated as not subject to tax is based on the proportion of: (1) Rate of tax on the interest income, reduced by the treaty; and treaty; and (2) Rate of tax on the income not reduced by the treaty15 ExampleCorporation pays $90 of interest income to parent corporation resident in Australia. tax treaty reduces withholding on interest from 30% to 10%. Under (j), $60 f i tt id b U S ti i tt d t $60 of interest paid by corporation is treated as not subject to Guarantees interest paid to a third party will be disqualified interest if there is a disqualified guarantee.

10 Any guarantee by a related person that is made by: Any guarantee by a related person that is made by: A tax-exempt, or A foreign person if the interest is not subject to a U S gross basisif the interest is not subject to a gross basistax Exceptions interest on debt would have been subject to tax on a interest on debt would have been subject to tax on a net basis if paid to the guarantor Taxpayer owns a controlling interest (at least 80% by vote and value) in the guarantor 17 Definition Of Guarantee Guarantee is defined broadly and includes any arrangement in Guarantee is defined broadly and includes any arrangement in which a person assures, on a conditional or unconditional basis, the payment of another s obligation.