FCC Proudreed Properties 2005 HSBC SG CORPORATE ...

(together with accrued interest). For the avoidance of doubt, Noteholders will not have the right to
require the Issuer to redeem the Notes in these circumstances.
If the Issuer or a Hedging Provider is obliged to pay such an increased amount as a result of its being
obliged to make such a withholding or deduction, it may terminate the transactions under the Hedging
Agreements (subject to the relevant Hedging Provider’s obligation to use its reasonable endeavours to
transfer its rights and obligations under the Hedging Agreement to a third party Hedging Provider such
that payments made by and to that third party Hedging Provider under the Hedging Agreements can be
made without any withholding or deduction for or on account of tax and, in a case where the Issuer wishes
to exercise its right to terminate the transactions under the Hedging Agreements, subject to the Ratings
Test being satisfied notwithstanding such termination). Any such increased amounts as may be payable by
the Issuer shall form part of the Hedging Subordinated Amounts, the payment of the On-going Facility
Fee in respect of which will rank junior to payments under the relevant Commercial Mortgage Loan in
the Obligor Priority of Payments. If a transaction under the Hedging Agreement is terminated, the Issuer
may be unable to meet its obligations under the Notes, with the result that the Noteholders may not
receive all of the payments of principal and interest due to them in respect of the Notes.
European Union Directive on the Taxation of Savings Income
On 3 June 2003, the Council of the European Union adopted a new directive regarding the taxation of
savings income (2003/48/EC) (the ‘‘Directive’’). The Directive is applicable to interest payments made as
from 1 July 2005.
Under the Directive, each Member State will be required to provide to the tax authorities of another
Member State, inter alia, details of payments of interest within the meaning of the Directive (interest,
products, premiums or other debt income made by a paying agent established in the first Member State
to or for the benefit of an individual resident (or certain residual entities) in that other Member State (the
‘‘Disclosure of Information Method’’). In this way, the term ‘‘paying agent’’ is defined widely and includes
in particular any economic operator who is responsible for making interest payments, within the meaning
of the Directive, for the benefit of individuals (or certain residual entities).
However, throughout a transitional period (the ‘‘Transitional Period’’), Austria, Belgium and Luxembourg,
instead of using the Disclosure of Information Method used by other Member States, would withhold an
amount on interest payments. The rate of such withholding tax will equal 15% during the first three years,
20% during the subsequent three years and 35% until the end of the Transitional Period. The Transitional
Period has commenced on 1 July 2005 and is to terminate if and when the European Union enters into
agreements on exchange of information upon request, with several jurisdictions (including the United
States, Switzerland, Liechtenstein, San Marino, Monaco and Andorra).
The Directive was implemented into French law by the Amended Finance Law for 2003 dated 30/12/2003,
by the administrative guidelines (Instruction 5 I-03-05 published 08/12/2005), by the Decree # 2005-330
dated 6 April 2005 (section 242 ter of the Code Général des Impôts(CGI)), and by the Decree # 2005-132
dated 15 February 2005 (sections 49 I ter, 49 I quater, 49 I quinquies, 49 I sexies of annex III to the CGI).
These provisions impose on paying agents based in France an obligation to report to the French tax
authorities, certain information with respect to interest payments made to beneficial owners domiciled in
another Member State (or certain territories), including, among other things, the identity and address of
the beneficial owner and a detailed list of the different categories of interests (within the meaning of the
Directive) paid to that beneficial owner. These reporting obligations have entered into force with respect
to interest payments made on or after 1 July 2005. The paying agents have nevertheless been required to
identify the beneficial owners of such payments as from 1 January 2004.
The attention of Noteholders is drawn to Condition 8 (Taxation).
The Issuer believes that the risks described above are the principal risks inherent in the transaction for
Noteholders, but the inability of the Issuer to pay interest, principal or other amounts on or in connection
with the Notes may occur for other reasons and the Issuer does not represent that the above statements
regarding the risks of holding the Notes are exhaustive. Although the Issuer believes that the various
structural elements described in this document mitigate some of these risks for Noteholders, there can be no
assurance that these measures will be sufficient to ensure payment to Noteholders of interest, principal or any
other amounts on or in connection with the Notes on a timely basis or at all.
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