Page 11 - Uniformity of Units
SPECTRA ENERGY PARTNERS, LP filed this Form 8-K on 2/21/2018
Uniformity of Units
Because we cannot match transferors and
transferees of units and for other reasons, we must maintain uniformity of the economic and tax characteristics of the units to
a purchaser of these units. As a result of the need to preserve uniformity, we may be unable to completely comply with a number
of federal income tax requirements. Any non-uniformity could have a negative impact on the value of our units. Please read “—Tax
Consequences of Unit Ownership—Section 754 Election.”
Our partnership agreement permits our general
partner to take positions in filing our tax returns that preserve the uniformity of our units. These positions may include reducing
the depreciation, amortization or loss deductions to which a unitholder would otherwise be entitled or reporting a slower amortization
of Section 743(b) adjustments for some unitholders than that to which they would otherwise be entitled. Vinson & Elkins L.L.P.
is unable to opine as to the validity of such filing positions.
A unitholder’s adjusted tax basis
in units is reduced by its share of our deductions (whether or not such deductions were claimed on an individual income tax return)
so that any position that we take that understates deductions will overstate the unitholder’s basis in its units, and may
cause the unitholder to understate gain or overstate loss on any sale of such units. Please read “— Disposition of
Units—Recognition of Gain or Loss” and “—Tax Consequences of Unit Ownership—Section 754 Election”
above. The IRS may challenge one or more of any positions we take to preserve the uniformity of our units. If such a challenge
were sustained, the uniformity of units might be affected, and, under some circumstances, the gain from the sale of our units might
be increased without the benefit of additional deductions.
Tax-Exempt Organizations and Other Investors
Ownership of our units by employee benefit
plans and other tax-exempt organizations, as well as by non-resident alien individuals, non-U.S. corporations and other non-U.S.
persons (collectively, “Non-U.S. Unitholders”) raises issues unique to those investors and, as described below, may
have substantial adverse tax consequences to them. Each prospective unitholder that is a tax-exempt entity or a Non-U.S. Unitholder
should consult its tax advisors before investing in our units.
Employee benefit plans and most other tax-exempt
organizations, including IRAs and other retirement plans, are subject to federal income tax on unrelated business taxable income.
Virtually all of our income will be unrelated business taxable income and will be taxable to a tax-exempt unitholder. Tax-exempt
unitholders with more than one unrelated trade or business (including by attribution from the Partnership to the extent it is engaged
in one or more unrelated trade or business) are required to separately compute their unrelated business taxable income with respect
to each unrelated trade or business (including for purposes of determining any net operating loss deduction). As a result, it may
not be possible for tax-exempt unitholders to utilize losses from an investment in the Partnership to offset unrelated business
taxable income from another unrelated trade or business and vice versa.
Non-U.S. Unitholders are taxed by the United
States on income effectively connected with a U.S. trade or business (“effectively connected income”) and on certain
types of U.S.-source non-effectively connected income (such as dividends), unless exempted or further limited by an income tax
treaty. Each Non-U.S. Unitholder will be considered to be engaged in business in the United States because of its ownership of
our units. Furthermore, Non-U.S. Unitholders will be deemed to conduct such activities through a permanent establishment in the
United States within the meaning of an applicable tax treaty. Consequently, each Non-U.S. Unitholder will be required to file federal
tax returns to report its share of our income, gain, loss or deduction and pay federal income tax on its share of our net income
or gain. Moreover, under rules applicable to publicly-traded partnerships, distributions to Non-U.S. Unitholders are subject to
withholding at the highest applicable effective tax rate. Each Non-U.S. Unitholder must obtain a taxpayer identification number
from the IRS and submit that number to our transfer agent on a Form W-8BEN or W-8BEN-E (or other applicable or successor form)
in order to obtain credit for these withholding taxes.
In addition, if a Non-U.S. Unitholder is
classified as a non-U.S. corporation, it will be treated as engaged in a United States trade or business and may be subject to
the U.S. branch profits tax at a rate of 30%, in addition to regular U.S. federal income tax, on its share of our income and gain
as adjusted for changes in the foreign corporation’s “U.S. net equity” to the extent reflected in the corporation’s
earnings and profits. That tax may be reduced or eliminated by an income tax treaty between the United States and the country in
which the foreign corporate unitholder is a “qualified resident.” In addition, this type of unitholder is subject to
special information reporting requirements under Section 6038C of the Code.