Taxation of derivative transactions Resolution of Banco Popular Español

On June 30, 2017, the Resolution of June 7, 2017, of the Governing Commission of the Banking Orderly Restructuring Fund was published in the BOE ##1## (FROB), by which it is agreed to adopt the resolution device on the entity Banco Popular Español, SA, in compliance with the provisions of article 29 of the Regulation ( EU ) no. 806/2014 of the European Parliament and of the Council of 15 July 2014, establishing rules and a uniform procedure for the resolution of credit institutions and certain investment services firms within the framework of a Single Resolution Mechanism and a Single Resolution Fund and Regulation ( EU ) No. 1093/2010 is amended.

The resolution instrument is the sale of the entity , through the transfer of all the shares of Banco Popular to the entity Banco Santander , whose offer was the only one that met the requirements for its admission.

The relevant capital instruments were previously amortized and converted. In the third legal basis , it refers to the execution of the faculty of amortization and conversion by carrying out an of the capital instruments:

1. Shares representing the share capital of Banco Popular: are those called to be amortized first.

2. Additional Tier 1 capital instruments (debentures, bonds, preferred shares): They are converted into shares and redeemed secondarily.

3. Additional capital instruments level 2 (subordinated debt, unlisted issues): They are converted into shares (which are the ones that are finally sold to Banco de Santander).

On September 12, 2017, Banco de Santander, SA approves and registers in the Official Records of the National Securities Market Commission a Note of Securities relating to the Public Offering for Sale ( OPV ) of contingently amortizable perpetual obligations or Loyalty Bonds of Banco de Santander SA

Banco de Santander, SA offers to certain shareholders (who acquired their shares between 26-5-2016 and 21-6-2016) and bondholders (subordinated bonds counted as tier 2 of the issues with codes ISIN ES0213790019 or ES0213790027), who meet certain conditions, a loyalty bonus: The bonds are traded on the AIAF fixed-income market. They will have a 7-year maturity and an annual interest rate of 1%, which will be paid quarterly.

Integration into the IRPF of the income obtained by shareholders and bondholders: