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This excerpt taken from the PBR 20-F filed May 22, 2009. Payments of Interest
Payments of “qualified stated interest” (as defined
below) on a note (including additional amounts, if any)
generally will be taxable to a U.S. holder as ordinary
interest income when such interest is accrued or received, in
accordance with the U.S. holder’s regular method of
tax accounting. In general, if the “issue price” of a
note is less than the “stated redemption price at
maturity” by more than a de minimis amount, such
note will be considered to have “original issue
discount” (OID). The issue price of a note is the first
price at which a substantial amount of such notes are sold to
investors. The stated redemption price at maturity of a note
generally includes all payments other than payments of qualified
stated interest.
In general, each U.S. holder of a note, whether such holder
uses the cash or the accrual method of tax accounting, will be
required to include in gross income as ordinary interest income
the sum of the “daily portions” of OID on the note for
all days during the taxable year that the U.S. holder owns
the note. The daily portions of OID on a note are determined by
allocating to each day in any accrual period a ratable portion
of the OID allocable to that accrual period. In general, in the
case of an initial holder, the amount of OID on a note allocable
to each accrual period is determined by (i) multiplying the
“adjusted issue price,” as defined below, of the note
at the beginning of the accrual period by the yield to maturity
of the note, and (ii) subtracting from that product the
amount of qualified stated interest allocable to that accrual
period. U.S. holders should be aware that they generally
must include OID in gross income as ordinary interest income for
U.S. federal income tax purposes as it accrues, in advance
of the receipt of cash attributable to that income. The
“adjusted issue price” of a note at the beginning of
any accrual period will generally be the sum of its issue price
(generally including accrued interest, if any) and the amount of
OID allocable to all prior accrual periods, reduced by the
amount of all payments other than payments of qualified stated
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interest (if any) made with respect to such note in all prior
accrual periods. The term “qualified stated interest”
generally means stated interest that is unconditionally payable
in cash or property (other than debt instruments of the issuer)
at least annually during the entire term of a note at a single
fixed rate of interest, or subject to certain conditions, based
on one or more interest indices.
Interest income, including OID, in respect of the notes will
constitute foreign source income for U.S. federal income
tax purposes and, with certain exceptions, will be treated
separately, together with other items of “passive category
income,” for purposes of computing the foreign tax credit
allowable under the U.S. federal income tax laws. The
calculation of foreign tax credits, involves the application of
complex rules that depend on a U.S. holder’s
particular circumstances. U.S. holders should consult their
own tax advisors regarding the availability of foreign tax
credits and the treatment of additional amounts.
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