Base Prospectus - Malta Financial Services Authority

Note reporting interest income as it is paid may be required to defer a portion of any interest
expense otherwise deductible on indebtedness incurred to purchase or carry the Short-Term Note
until the taxable disposition of the Short-Term Note. A cash basis taxpayer may elect to have
Section 1281 of the Code apply to all of its non-government debt obligations with a term of one
year or less, in which case the taxpayer would include interest on the Short-Term Note in income
as it accrues, but would not be subject to the interest expense deferral rule referred to in the
preceding sentence. Once made, this election applies to all relevant debt obligations held or
subsequently acquired by the electing holder on or after the first day of the first taxable year to
which the election applies and may not be revoked without the consent of the United States
Internal Revenue Service (the ‘‘IRS’’). Certain special rules apply if a Short-Term Note is
purchased for more or less than its principal amount.
OID on a Non-U.S. Dollar Note will be determined for any accrual period in the foreign
currency in which the Note is denominated and then translated into U.S. dollars in the same
manner as interest income accrued by a U.S. Holder on the accrual basis, as described above.
Likewise, a U.S. Holder will recognise foreign currency gain or loss when the OID is paid to the
extent of the difference between the U.S. dollar value of such payment (determined by translating
the foreign currency into U.S. dollars at the spot rate for foreign currency on the date received)
and the U.S. dollar value of the accrued OID included in income.
Certain of the Notes (a) may be redeemable at the option of the Issuer prior to their stated
maturity and/or (b) may be repayable at the option of the Holder prior to their stated maturity.
Notes containing such features may be subject to rules that differ from the general rules discussed
above. Investors intending to purchase Notes with such features should consult their tax advisers,
since the OID consequences will depend, in part, on the particular terms and features of the
purchased Notes.
Amortisable Bond Premium
A U.S. Holder who purchases a Note for an amount in excess of the sum of all amounts
payable on the Note after the purchase date other than qualified stated interest will be considered
to have purchased the Note at a premium and will not be required to include any OID in income. A
U.S. Holder generally may elect to amortise the bond premium over the remaining term of the Note
on a constant yield method. The amount amortised in any year will be treated as a reduction of
the U.S. Holder’s interest income from the Note. The basis for such Notes will be reduced to the
extent that amortisable premium is applied to offset interest payments. In the case of a Non-U.S.
Dollar Note, the amount of bond premium will be measured in the foreign currency in which the
Note is denominated and will reduce the amount of foreign currency denominated interest income
that is required to be translated into U.S. dollars in any accrual period. Bond premium on a Note
held by a U.S. Holder that does not make such an election will be recognised as a loss when the
Note matures or will decrease the gain or increase the loss otherwise recognised on disposition of
the Note. Once made, the election to amortise the bond premium on a constant yield method
applies to all debt obligations held or subsequently acquired by the electing holder on or after the
first day of the first taxable year to which the election applies and may not be revoked without the
consent of the IRS.
Election to Treat All Income as OID
A U.S. Holder may elect to treat all interest (as adjusted by any amortisable bond premium
and acquisition premium, as defined under ‘‘Further Notes’’ below) on any Note as OID and
calculate the amount includable in gross income under the constant yield method described above,
with certain modifications. For the purpose of this election, interest includes qualified stated
interest, OID, market discount, de minimis market discount and unstated interest. The election,
which generally applies only to the Note with respect to which it is made, is to be made for the
taxable year in which the U.S. Holder acquired the Note, and may not be revoked without the
consent of the IRS.
Floating Rate Notes
Notes may provide for interest based on a floating rate (‘‘Floating Rate Notes’’). Generally,
special OID rules described below will apply to the Floating Rate Notes if: (i) the issue price of the
Notes does not exceed certain premium restrictions (i.e., it does not exceed the total noncontingent
principal payments due under the Floating Rate Notes by more than any amount equal to the
lesser of (a) 0.015 multiplied by the product of the total noncontingent principal payments and the
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