Part 1 - AL-Tax

International Taxation Handbookregulatory, or taxation reasons. The third factor relates to the assets being securitizedthemselves. Those assets may be diversified by geographic region.A critical element in the economic viability of cash securitizations is ensuringneutrality for any taxation imposts on the transfer of assets from the bank or corporationto the orphan entity. In many active securitization markets, imposts inthe form of stamp duty are levied by the revenue authorities on sales of assets(including receivables and real property mortgages). Moreover, failure to pay therequisite taxation impost may lead to the invalidation of the asset sale. This arisesboth in the case of purely domestic securitizations (where the securitized assets,the orphan entity, and the investors are situated in the same taxation jurisdiction)and international or cross-border securitizations (where some or all of the securitizedassets are situated in a different taxation jurisdiction to that of the orphanentity). The latter is a common feature of many bank securitizations where amulti-jurisdiction loan portfolio is being securitized (that is, the borrowers arespread across multiple jurisdictions) and of offshore securitizations where theorphan entity is incorporated in an offshore jurisdiction.This chapter outlines the structure of cash securitizations and also discussesthe way in which asset transfers are structured to avoid the imposition of stampduty and similar taxation imposts.5.2 Cash securitizationsCash securitizations, which are the more common of the two main forms of bothdomestic and international securitizations (the other being synthetic securitizations),involve the combination of two well-known concepts: The transfer of assets from theoriginator of the assets (or a warehouse facility provider) to a securitization vehicle,and the issue of securities to investors in the capital markets by the securitizationvehicle (Ali and de Vries Robbe, 2003). The proceeds obtained from the issue of securitiesare employed by the securitization vehicle to finance the acquisition of theassets from the originator or warehouse facility provider, while the cashflows generatedby those assets are used to meet the securitization vehicle’s obligations to payprincipal and interest on the securities (Ali and de Vries Robbe, 2003).The efficacy of any cash securitization depends upon two key factors. First,the securitization vehicle must be structured in a manner so that it is bankruptcyremote from the originator and, second, the transfer of the securitized assets mustconstitute a true sale to the securitization vehicle. It is also essential, when structuringa true sale of assets, to ensure that the true sale does not attract stamp dutyor a similar taxation impost.100