KPMG - IERE

have made a timely QEF election. A QEF election, once made with respect to the Company, applies
to the tax year for which it was made and to all subsequent tax years, unless the election is
invalidated or terminated, or the IRS consents to its revocation.
If a US Holder does not make a timely QEF election during a year in which the Holder holds (or is
deemed to have held) the Shares and the Company is a PFIC, then the special rules discussed above
will apply to (a) gains realised on an actual or constructive disposition of the Holder’s Shares, and
(b) certain ‘‘excess distributions’’, within the meaning of Section 1291 of the Code, by the Company.
PFIC – Mark-to-Market Election
US Holders that hold (actually or constructively) marketable stock of a non-US corporation that
qualifies as a PFIC may elect to mark such stock annually to the market (‘‘mark-to-market election’’).
If such election is made, the US Holder generally will not be subject to the special rules discussed
above concerning excess distributions. Instead, any excess of the fair Market Value of the Shares at
the close of the tax year over the US Holder’s adjusted basis in such Shares will be included in the
Holder’s income. The US Holder may deduct any excess of the US Holder’s adjusted tax basis in the
Shares over the fair Market Value of such Shares at the close of the taxable year; however,
deductions are limited to the net mark-to-market gains on Shares that the US Holder included in
income in prior tax years. A US Holder’s adjusted basis in the Shares is increased by the income
recognised under the mark-to-market election and decreased by the deductions allowed under the
election. Income recognised under the mark-to-market election and gain on the sale of Shares with
respect to which an election is made will be treated as ordinary income. Deductions allowed under
the election and loss on the sale of Shares with respect to which an election is made, to the extent
that the amount of loss does not exceed the net mark-to-market gains previously included, will be
treated as ordinary losses. Any remaining loss on the sale of Shares will be treated as capital loss.
The source of any income or losses as US or foreign source is determined as if the amount were a
gain or loss from the sale of stock in the Company. There can be no assurance that Shares will be
deemed to be marketable stock for purposes of the mark-to-market election such that the mark-tomarket
election will be available to US Holders of the Shares.
Indirect Investments in PFICs
Similar rules to those described under ‘‘PFIC – Default Excess Distribution Rules’’ would apply in
respect of an interest in any lower-tier PFIC subsidiary where a US Holder is deemed to own that
interest under the PFIC rules, unless a US Holder has made one of the mitigating elections discussed
in ‘‘PFIC – Qualified Electing Fund Election’’ or ‘‘PFIC – Mark-to-Market Election’’ or the
Company is able to elect and has elected to treat each of its direct and indirect subsidiaries as a
disregarded entity or partnership, as applicable, for US federal income tax purposes.
In particular, a US Holder will be subject to the adverse PFIC consequences described above upon
the occurrence of any transaction that decreases the US Holder’s proportionate interest in a lower-tier
PFIC, or upon the deemed receipt of certain distributions from a lower-tier PFIC, unless the US
Holder is able to make, and does in fact make, a valid QEF election or a valid mark-to-market
election with respect to that lower-tier PFIC (regardless of whether any such election is made with
respect to the Company or any other lower-tier PFIC). However, there can be no assurance that any
lower-tier PFIC will comply with the recordkeeping requirements, or make available the US tax
information, necessary to allow US Holders to elect to treat such lower-tier PFIC as a QEF. In
addition, there can be no assurance that US Holders will be able to make a mark-to-market election
with respect to the shares of a lower-tier PFIC even if such shares constitute marketable stock for
purposes of the mark-to-market election. Additionally, the Company does not expect to make an
election to treat each of its current or future eligible direct and indirect subsidiaries as a disregarded
entity or partnership, as applicable, for US federal income tax purposes.
US Holders should consult their own tax advisers regarding the tax consequences to them as a result
of the Company’s direct or indirect investment in a PFIC, including the consequences of a QEF or
mark-to-market election.
Certain Other Considerations relating to PFICs
The IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would treat as
taxable certain transfers of PFIC stock by US Holders not making a QEF election that are generally
not otherwise taxed, such as gifts or exchanges pursuant to corporate reorganisations. Generally, in
such cases the basis of the Shares in the hands of the transferee and the basis of any property
received in the exchange for the Shares would be increased by the amount of gain recognised. Under
127