VALLAURIS II CLO PLC - Irish Stock Exchange

Tax Treatment of the Issuer
The Code and the Treasury regulations promulgated thereunder provide a specific exemption
from net income-based U.S. federal income tax to non-U.S. corporations that restrict their activities
in the United States to trading in stocks and securities (and any other activity closely related thereto)
for their own account, whether such trading (or such other activity) is conducted by the corporation
or its employees or through a resident broker, commission agent, custodian or other agent. See
‘‘Description of the Portfolio-Management of the Portfolio’’. This particular exemption does not apply
to non-U.S. corporations that are engaged in activities in the United States other than trading in
stocks and securities (and any other activity closely related thereto) for their own account or that are
dealers in stocks and securities.
The Issuer intends to rely on the above exemption and does not intend to operate so as to be
subject to U.S. federal income taxes on its net income. Although no activity closely comparable to
that contemplated by the Issuer has been the subject of any Treasury regulation, administrative ruling
or judicial decision, under current law and assuming compliance with the Issuer’s relevant governing
documents, the Trust Deed, the Collateral Management Agreement, the Agency Agreement and other
related documents, the Issuer believes that its permitted activities will not cause it to be engaged in a
trade or business in the United States, and consequently, the Issuer’s profits will not be subject to
U.S. federal income tax on a net income basis (or the branch profits tax). However, if the IRS were
to successfully assert that the Issuer were engaged in a United States trade or business and the Issuer
had taxable income that was effectively connected with such U.S. trade or business, the Issuer would
be subject under the Code to the regular U.S. corporate income tax on such effectively connected
taxable income (and possibly to the 30 per cent. branch profits tax as well). The imposition of such
taxes would materially affect the Issuer’s financial ability to make payments with respect to the Notes
and could materially affect the yield of the Notes. In addition, the imposition of such taxes could
constitute a Withholding Tax Event.
Generally, foreign currency gains are sourced to the residence of the recipient. Thus, foreign
currency gains of a non-U.S. corporation are generally treated as foreign source income. However, if
for this purpose a non-United States corporation has a principal place of business in the United
States (the ‘‘U.S. business’’), even if the corporation has another principal place of business outside
the United States, generally any foreign currency gain properly reflected as income of the U.S.
business is treated as U.S. source income. Any U.S. source foreign currency gains that are not
derived from the sale of property are subject to U.S. withholding tax. A non-U.S. corporation could
be considered to have a U.S. business for this purpose even if it does not have any income effectively
connected to a United States trade or business for purposes of being subject to U.S. taxation on its
net income. The Issuer intends to take the position that none of its foreign currency gains will be
subject to U.S. withholding tax. However, the application of these rules is unclear and the activities
of the Issuer could cause it to have foreign currency gains subject to U.S. withholding tax. In
addition, the imposition of such taxes could constitute a Withholding Tax Event.
United States Withholding Taxes Although, based on the foregoing, the Issuer is not expected to
be subject to U.S. federal income tax on a net income basis, income derived by the Issuer may be
subject to withholding taxes imposed by the United States or other countries. Generally, U.S. source
interest income received by a foreign corporation not engaged in a trade or business within the
United States is subject to U.S. withholding tax at the rate of 30 per cent. of the amount thereof.
The Code provides an exemption (the ‘‘portfolio interest exemption’’) from such withholding tax for
interest paid with respect to certain debt obligations issued after 18 July 1984, unless the interest
constitutes a certain type of contingent interest or is paid to a 10 per cent. shareholder of the payor,
to a controlled foreign corporation related to the payor, or to a bank with respect to a loan entered
into in the ordinary course of its business. In this regard, the Issuer is permitted to acquire a
particular Collateral Debt Obligation only if the payments thereon are exempt from U.S. withholding
taxes at the time of purchase or commitment to purchase or the obligor is required to make ‘‘grossup’’
payments that offset fully any such tax on any such payments. However, the Issuer does not
anticipate that it will otherwise derive material amounts of any other items of income that would be
subject to U.S. withholding taxes. Accordingly, assuming compliance with the foregoing restrictions
and subject to the foregoing qualifications, income derived by the Issuer will be free of or fully
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