©2008 Sutherland Three Things You Need to Know About the HIRE Act Carol Tello Robb Chase December 15, 2010

©2010 Sutherland Asbill & Brennan LLP Two significant tax law changes were made with the enactment of the Hiring Incentives to Restore Employment (HIRE) Act in March  Foreign Account Tax Compliance Act (FATCA) - Provides for 30% withholding on any withholdable payment made to a foreign financial institution, unless FFI agrees to certain procedures relating to information reporting on U.S. account holders.  This legislation is in addition to the nonresident withholding tax regime already in effect.  Withholding on Certain Notional Principal Contracts – Reverses the general rule that notional principal contract payments are sourced to the jurisdiction of the recipient in the case of certain equity swaps.  This means that more NPC payments will be subject to U.S. withholding tax. These changes may impact the way energy companies document and execute derivatives transactions, particularly notional principal contracts.

©2010 Sutherland Asbill & Brennan LLP U.S. energy companies should be thinking about their potential compliance obligations under FATCA.  Potential withholding and information reporting rules need to be considered when documenting cross-border transactions.  Rules generally go into effect for payments made after March 18, 2012 (certain payments are grandfathered).  Important to incorporate FATCA rules now particularly for agreements that will be in place after the effective date (e.g., ISDA Master Agreements).  Notice provides guidance to U.S. financial institutions regarding satisfaction of FATCA requirements, and additional guidance is forthcoming.

©2010 Sutherland Asbill & Brennan LLP Non-U.S. companies also need to be considering the implications of FATCA.  Definition of “financial institution” is very broad, potentially impacting energy trading companies.  IRS guidance as to exemptions and carve-outs will be important.  A foreign company that is not a “financial institution” will still have obligations as a “non-foreign financial entity.”  Under Notice , IRS provided detailed “know your customer rules” for purposes of identifying U.S. beneficial owners of income received.  Important to ensure that transaction documentation with U.S. counterparties contemplates the potential for obligations under FATCA.

©2010 Sutherland Asbill & Brennan LLP Implications of new rules for withholding on equity swaps.  Arise out of a concern that non-U.S. persons were using equity swaps to avoid withholding tax on dividend distributions  Swap income ordinarily sourced to residence of recipient, so foreign investor in equity swap received foreign source treatment even for substitute dividend payments.  New rules modify the source rules for equity swaps, sourcing substitute dividend payments by reference to the underlying equity.  Currently effective for certain perceived abusive transactions, but generally effective for notional principal contracts on equity after March 18,  May be of limited direct relevance to energy and commodity traders who do not regularly engage in equity transactions, but has potential implications for the documentation of notional principal contracts, particularly ISDA Master Agreements.

©2010 Sutherland Asbill & Brennan LLP Four things to consider now when documenting commodity swap transactions. 1.ISDA HIRE Act Protocol – ISDA’s attempt to address the changes made by the HIRE Act—One size fits all approach may not work for everyone. 2.Remember, there may be different types of payments under a single transaction (e.g., periodic payments, interest on margin accounts or posted collateral, substitute dividend payments, etc.), which may be subject to current nonresident withholding. 3.IRS is in the process of drafting HIRE Act implementation rules, so there still are opportunities to influence the final product if it appears the new rules have unintended consequences. 4.Make sure compliance teams are aware and that they have necessary systems in place when the new rules become effective.

©2010 Sutherland Asbill & Brennan LLP Carol P. Tello Partner Carol Tello is a member of Sutherland’s Tax Practice Group and focuses primarily on international tax matters. Her practice includes a broad range of cross-border tax planning and Internal Revenue Service (IRS) controversy matters for both business entities and individuals. Much of her work has been for insurance companies in the cross-border context. She has particular experience in cross-border restructuring transactions, inbound corporate transactions, withholding matters, and treaty interpretation issues, as well as cross-border taxation of corporate executives and the U.S. taxation of non-U.S. citizens. She also advises clients on tax issues involving intellectual property transactions.

©2010 Sutherland Asbill & Brennan LLP Robb S. Chase Partner Robb Chase is a member of Sutherland’s Tax Practice Group and focuses his practice on domestic and international tax planning and the taxation of financial products. In the area of tax planning, Robb has extensive experience analyzing issues relating to acquisitions, dispositions, joint ventures, restructurings and finance company arrangements. He has counseled multi-national corporations in all aspects of structuring, negotiating, documenting and reporting cross-border transactions. Robb regularly advises clients on tax issues relating to domestic and foreign public and private debt offerings, synthetic and hybrid instruments, foreign currency transactions, swaps and derivatives, hedging transactions, and other complex financial products and transactions.