Part 1 - AL-Tax

International Taxation Handbookother security interest (but alien to that of a buyer), upon the securitization vehicleto recover any fall in value of the securitized assets from the originator.The other key concern with the substitution of assets relates to stamp duty.A substitution of assets involves two assignments of assets: An assignment ofnew assets from the originator to the securitization vehicle and a reassignment ofexisting assets from the securitization vehicle to the originator. The first assignmentcan simply be effected in the same way as the original assignment of theexisting assets.The second assignment can, however, be problematic from a stamp duty perspective.This assignment will necessarily involve an assignment of existing equitableinterests (being the securitization vehicle’s equitable title to the assets beingreplaced), and as such must be reduced to writing and will attract the applicationof stamp duty or similar taxation impost (unless the assignment has the benefit ofa statutory exemption).One intriguing method of dealing with this issue has been advanced but,unfortunately, in the absence of a statutory exemption from stamp duty, it can bedismissed as of little legal merit. Some market participants have advocated characterizingthe reassignment of the assets being replaced not as an assignment(which would attract the consequences outlined above), but as a disclaimer of theequitable interest in those assets in favor of the originator. There are two problemswith this suggestion. First, a disclaimer that takes effect as a directed vestingof assets in a specific person (since the clear intention here is that it is theoriginator and not any other person who should obtain the equitable interest inquestion) will almost certainly be treated as an assignment by a court since, as amatter of law, one cannot disclaim or abandon property in favor of a specific person.Second, if, on the other hand, the disclaimer is to be interpreted accordingto its terms and that the assets in question are seen as having being abandoned bythe securitization vehicle (with the effect that the originator is in an analogousposition to a person who acquires title by finding such assets), the likely result isthat there will be no equitable interests to be found by the originator – the abandonmentof debts is very likely to be treated by a court as a release of the debts,with their resulting extinguishment.Perhaps a more effective means of dealing with the reassignment issue is tolook more closely at the original assignment of assets. The original assignment, asnoted above, effects a severance of the equitable title to the assets being securitizedfrom the legal title to those assets. This has the effect of constituting theoriginator the trustee of the securitized assets for the benefit of the securitizationvehicle. In analogous fashion, the reassignment of the assets could be effected via108