Form 1120F and Schedules M-3, H, I & P

1. Form 1120F and Schedules M-3, H, I & P Institute of International Bankers Annual Tax Conference – New York June 18, 2007 Steven Quint (CALYON Bank): Moderator Karina Pogrebinsky – KPMG Lawrence Weinblatt – PWC Debra Taylor – Ernst & Young Stuart Zwerling – Deloitte Tax LLP Paul Epstein – Office of Assoc. Chief Counsel (Int’l ) - IRS

2. Form 1120F, and Schedules M-3, H, I & P • Required for Foreign Corporation Tax Years 2007 • E-File will be optional for 2007 year tax returns • Adopts new schedules • Schedule M-3 (Corporations with assets > $10 million) • Schedule H (Home Office and Trade or Business Expense Allocation - §1.861-8) • Schedule I (Interest Expense Allocation - §1.882-5) • Schedule P (Reconciliation of Foreign Partner K-1 to effectively connected income) • Coordinates §1.882-5(d)(2) “set(s) of books and records” for 1120F Schedule L and for new schedules

3. Form 1120F: Schedule L • Schedule L Books and Records: • §1.6012-2(g)(1)(iii) permits ECI generating assets and U.S. based asset reporting • §1.882-5(d)(2) set(s) of books definition of “U.S. booked liabilities” is adopted consistent with the regulation (“Schedule L Books”) • Interbranch Assets • Non-U.S. Assets (non-ECI assets) • U.S. Assets (those includible under §1.884-1(d)) • Interbranch and 3rd Party Liability breakout • Schedule L Books uniformly used for Form M-3 books, and Schedules H, I & P • Schedule H – Part IV deductions on trade or business books allocated and apportioned to ECI/non-ECI • Schedule I - §1.882-5 reporting of U.S. booked liabilities and book expense • Schedule P – Liabilities on partnership trade or business books • Form 1120F, Page 5, Section II – Determination of branch interest for branch-level interest tax • Worldwide reporting permitted

4. Schedule M-3:Net Income (Loss) Reconciliation (1120F) • Financial Statement Identification: • Audited Statements • Unaudited Statements • Trial Balances • Non-Banks (Worldwide Statement) • Foreign Banks (Books used for Sched. L) • Part I (Financial Statement Net Income): • Nonconsolidated Statement (with parent) • May have subsidiaries consolidated • Include Disregarded Entities not on Statement • Exclude Subsidiaries/Entities in Consolidation • Eliminations for inter-company dividends • Line 11: Adjusted financial net income that constitutes the Foreign Corporation for tax purposes

5. Schedule M-3:Net Income (Loss) Reconciliation (1120F) • Part II: Reconciliation of Financial Gross Income in Part I, Line 11 to Taxable Income • Columns (a) – (c) adjust financial income to U.S. tax principles before apportionment to ECI • Columns (d) & (e) apportion gross income to ECI and non-ECI- • Non-Banks: Column (a) is Worldwide Gross Income – i.e. column (d) allocates only to non-ECI • Foreign Banks: Column (a) is Sched L books determined under §1.882-5(d)(2) principles Column (d) may allocate column (a) amount to non-ECI • Line 23 special treatment allocates some offshore booked items to ECI • New Lines • Substitute Interest and Dividends Rec’d (Proprietary Securities Lending) • Expanded Mark-to-Market categories • Global Dealing Income

6. Schedule M-3:Net Income (Loss) Reconciliation (1120F) • Part II: Reconciliation of Financial Gross Income in Part I, Line 11 to Taxable Income • Line 23: Foreign Banks Only – Report ECI not on Schedule L books • Income/gains - §864(c)(6) and (c)(7) • Certain securities attributable to U.S. office under the material participation test in §1.864-4(c)(5)(iii) • Line 28 col. (e) reconciles to 1120F, line 29 • Part III: Reconciliation of Deductions to ECI • U.S. Source Substitute Interest and Dividends Paid • Special Reporting in columns (c) and (d) for non-ECI amounts not in column (a) or (e) • Interest equivalents (e.g. guarantee fees) • Home Office Allocation – From Sched. H

7. Schedule M-3:Net Income (Loss) Reconciliation (1120F) • Part III: Reconciliation of Deductions to ECI • Interest Expense Reconciliation to Schedule I • Amounts Reconcile to total deductions on Form 1120 F, Line 26

8. Schedule I: §1.882-5 Interest Expense Allocation Identification of Step 3 Method • Step 1: US Assets • Schedule L Books • Aggregate adjustments (Column (a)) • P’Ship Liabilities (Column (b)) • Other non-Sched L US Assets – Column (c) • Step 2: US-Connected Liabilities • Identification of Ratio • USCL Amount • Liability Reduction Election • Step 3: U.S. Booked Liabilities/Int. • §1.882-5(d)(2) booked amount • Partnership booked liabilities • Schedule P Carryovers

9. Schedule I: §1.882-5 Interest Expense Allocation • Step 3: AUSBL Method • Bank 30-Day LIBOR Election Box • Actual Excess Interest Rate (if applicable) • Scaling Ratio (if applicable) • Hedging (not reported here) • Step 3: Separate Currency Pools Method • Handles Four Currencies on Form • 3% Currency Election Box • Liability Reduction Election Amount • WW Avg. Borrowing Rate Ratio • Deduction by Currency • Summary of Results: • Allocation under 3-Step Formula • Directly Allocable Interest • Adjustments for Deferrals/Tax-Exempt • Deduction to 1120F, pg. 3, line 18

10. Schedule H: Deductions Allocated to ECI under §1.861-8 • Part I: Direct Allocations • Identification of Costs • Adjustments to U.S. Principles • Direct Allocations to non-ECI • Residual Deductions • Part II : Indirect Allocations • Translation to US Dollars • Total H/O Allocation - Line 21 • Part III: Financial Records & Methods • Gross Income Ratio • Gross Asset Ratio • Personnel Headcount Ratio • Ratios are not safe harbors

11. Schedule H: Deductions Allocated to ECI under §1.861-8 • Part III (cont’d): Financial Records • Cost Acct’g Reports, etc. • Part IV: Trade or Business Books • Schedule L Books • Identification of Costs • Adjust to U.S. Tax Principles • Allocable Deduction Pool • Part IV: Schedule L Deductions Allocable to ECI/non-ECI • Direct allocations for NPC Exp. • Direct cost allocations • Indirect cost allocations • Reconciles to Form 1120F, pg. 3

12. Schedule P: Reconciliation of Foreign Partner Income • Part I: List of Foreign Partner Interests • Report only top tier P’ship Interests • Attach schedule if over 5 Interests • Part II: Reconciliation of Form K-1 to ECI, Deductions and Book Interest Expense: • Trade or Business Line Gross-ups • Gross Income • Non-Interest Expense Deductions • Other Gross Income • Other non-Interest Expense • Interest Expense Groupings • Trade or Business Lines • Other Interest Lines • Directly Allocable Amounts • Amounts Flow to Schedule I

13. Schedule P: Reconciliation of Foreign Partner Income • Part III: Partner Outside Basis for Interest • Expense Allocation under §1.882-5: • Partner Basis under §705 • Identification of direct allocations • Other Partner Liabilities • Flows to Schedule I, Line 8, col. (b) • Adjusted Outside Foreign Partner Basis • Apportionment of Adj. Outside Basis • Flows to Schedule I, Line 5, col. (b) • Identify “Income” or “Asset” Method