Part 1 - AL-Tax

International Taxation Handbookat law (meaning that a fresh assignment must be effected in respect of each futureaddition to the securitized pool of assets) has meant that legal assignments arerarely employed in cash securitizations (Ali and de Vries Robbe, 2003).5.6 True sales and equitable assignmentsAn equitable assignment of a debt, in contrast, suffers none of the shortcomingsidentified above with legal assignments. The efficacy of an equitable assignmentis not dependent upon notice of the assignment being given to the underlyingdebtor (thus leaving the relationship between the originator and the debtor intact),unless the debt is subject to an anti-assignment clause under which the prior consentof the debtor must be sought (McCormack, 1999). Both present and futuredebts can be subject of an equitable assignment (so that a generic class of debts canbe assigned). Furthermore, equitable assignments can be readily structured to avoidthe imposition of stamp duty and similar taxation imposts. There is, however, amajor drawback with equitable assignments. The originator retains legal title tothe assigned debt and, unless the securitization vehicle elects to give notice of theassignment to the underlying debtor, that debtor will continue to make paymentson the debt to the originator and remain free to reduce its liability on the debt tothe originator by exercising rights of set-off against the originator.Avoiding the imposition of stamp duty and similar taxation imposts is accomplishedby ensuring that the assignment of the debts being securitized is not reducedto writing. The method commonly selected is one which combines a written offerwith acceptance by conduct. The originator offers to assign certain designateddebts (or an entire generic class of debts) to the securitization vehicle and the latteraccepts that offer simply by remitting a portion of the proceeds from theissuance of the securities equivalent to the purchase price nominated in the offerto the originator. The written offer is not evidence of the assignment as, on itsown, it does not constitute a binding contract between the originator and thesecuritization vehicle to assign the designated debts (that contract only comesinto existence on the securitization vehicle’s payment of the purchase price).Nor does this method of assignment run foul of the requirement in the propertylawstatutes of many common-law jurisdictions (including Australia) that assignmentsof equitable interests, whether of real or personal property, must be madein writing in order to be valid. Having to comply with this requirement wouldrender the assignment subject to stamp duty (in the absence of an express statutoryexemption). It is, however, possible to interpret this requirement as applying106