Part 1 - AL-Tax

International Taxation Handbooktake the benefit of any increase in value of the securitized assets above theamount advanced to the originator.Moreover, the originator’s retention of a beneficial interest in the securitizedassets means that those assets, even though the majority of the beneficial interesthas passed to the securitization vehicle, can still be attached by the originator’screditors, in the event of the originator’s insolvency. That beneficial interest, sinceit constitutes property, will continue to form part of the pool of assets available fordistribution, on insolvency, to the originator’s creditors. Accordingly, the failureof the transfer of assets to satisfy the requirements for a true sale means that,regardless of the fact that the originator does not own or control the securitizationvehicle, the securitization vehicle will not be bankruptcy remote from the originatorand the securitized assets will be pooled with the originator’s assets.The absence of a true sale will also abrogate the very rationale for the securitization.The investors in the securities issued by the securitization vehicle willremain exposed to the credit risk of the originator and, accordingly, will be in nodifferent a position to creditors that have advanced funds directly to the originator.The funds raised by the securitization vehicle (and which are to be passed onto the originator in the form of the purchase price for the securitized assets) willnot be priced on a basis that reflects only the creditworthiness of the securitizedassets, but will also take into account the originator’s creditworthiness. In addition,without a true sale, the originator will not be able to remove the securitizedassets from its balance sheet (and the funds received from the securitization vehiclewill need to be accounted for as a liability rather than an asset on the originator’sbalance sheet). Nor, if the originator is a bank, will it be able to release theregulatory capital held by it against the assets being securitized.The true sale of the securitized assets is thus an integral component of all cashsecuritizations. Care, however, must be taken when structuring the sale to ensurethat not only is the risk of recharacterization avoided or minimized, but also thatthe sale is neutral as regards stamp duty and similar taxation imposts. This is aparticularly onerous matter as regards international securitizations, where thequestions as to the efficacy of the sale and its neutrality must be examined in alljurisdictions in which the securitized assets are located.5.5 True sales and legal assignmentsStamp duty is a document-based impost. Accordingly, while a sale of assets (suchas the assets the subject of a securitization) may constitute a sale of dutiable assets,104