USA Law and Practice Contributed by: Stelios Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins
decline by 25 bps per quarter (ie, a prepayment in the third full fiscal quarter following the closing date would only garner a 1.50% premium).
The PIE is only available for debt in “registered form” for US federal income tax purposes and does not apply to certain contingent interest, such as interest determined by reference to any receipts, sales, cash flow, income, or profits of or the fluctuation in value of property owned by, or dividends, distributions or similar payments by the borrower or a related person. To claim an exemption or reduction under an applicable double taxation treaty or the PIE, the beneficial owner of interest must generally sub - mit a completed IRS Form W-8BEN-E (or, IRS Form W-8BEN, if an individual). If interest paid to a non-US lender is effectively connected with the lender’s trade or business in the US, such interest will not be subject to US federal withholding tax if the lender submits a completed IRS Form W-8ECI, but will generally be subject to net income tax in the US and, for foreign corporations, branch profits taxes. Other exemptions may be available for foreign governments or governmental entities assuming they provide the applicable completed IRS Form W-8EXP. Withholding taxes may also apply upon: • payment to a US person that does not demonstrate an exemption by providing an applicable completed IRS Form W-9; • payment of US source interest and certain other amounts to entities treated as “For - eign Financial Institutions” not eligible for an exemption from Foreign Account Tax Compli - ance Act (FATCA) withholding tax; and • payment of various fees (such as letter of credit fees), modifications to debt obligations and various adjustments on debt obligations convertible into stock.
4. Tax Considerations 4.1 Withholding Tax
Payments by US issuers or borrowers to US holders or lenders are not subject to withhold - ing taxes under federal law. 4.2 Other Taxes, Duties, Charges or Tax Considerations The US federal government generally imposes a 30% withholding tax on interest paid to non- US lenders on a debt obligation of a US person (and certain non-US persons engaged in trade or business in the US). For this purpose, payments with respect to any original issue discount, if not considered less than de minimis, are also treated as interest income and subject to such withhold - ing tax. If a lender is qualified for the benefits of an appli - cable double taxation treaty between the US and its country of residence, the withholding tax may be reduced or eliminated. A non-US lender may alternatively qualify for exemption under the “portfolio interest exemp - tion” (the “PIE”). To qualify, the lender must not: • be a controlled foreign corporation related to the borrower or a bank receiving interest on an extension of credit entered into in the ordinary course of its trade or business; or • own directly, indirectly or by attribution equity representing 10% or more of the borrower’s total combined voting power of all voting stock (or, if the borrower is a partnership, 10% or more of its capital or profits interest).
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