JAPAN Law and Practice Contributed by: Hiroaki Takahashi, Kaoru Sato, Kenji Miyagawa and Koji Kawamura, Anderson Mori & Tomotsune
“securitisation gain on sale” in conformity with the form for a capital position disclosure. 4.10 SPEs or Other Entities Depending on the securitisation scheme, a trust (TMK) or a company similar to the US limited lia - bility company ( godo kaisha ) is used to accom - plish securitisations. Which entity is used varies in each transaction, taking into consideration bankruptcy remote - ness, tax benefit, licences and other legal requirements, flexibility in terms of management of the entity, costs associated with the entity, etc. A trust enables the separation of legal and ben - eficial ownership. Specifically, the trustee in a trust structure is the legal owner of the underly - ing assets, while the economic interests in the trust assets belong to the holders of trust ben - eficial interests issued by the trustee. It is also easier to generate cash flow from the underly - ing trust assets by issuing multiple or different classes of TBIs in a trust. Assets held in trust will also be remote from risks of bankruptcy of both the originator and the trus - tee if the asset transfer from the originator to the trustee is deemed to be a true trust ( shinsei shin - taku ). The factors to be considered in determin - ing whether a true trust exists are similar to the factors involved in determining whether a true sale ( shinsei baibai ) has occurred. Trustees are subject to various requirements, including licensing requirements under the Trust Business Act and fiduciary duty requirements. Due to these requirements, the trust structure is generally regarded as being stable and credible.
The transactional parties in a trust structure are eligible for certain tax benefits. For example, the transfer tax rate applicable to the sale and pur - chase of trust beneficial interests is much lower than the rate applicable to transfers of fee simple real estate. Due to the advantages set out above, trust struc - tures are used at various levels in securitisation transactions in Japan, including: • the underlying asset level, where underlying assets are converted to TBIs; • the securitisation vehicle level, where the underlying assets are transferred to the trus - tee who issues TBIs and/or to whom asset- backed loans are made; and • the lending level, where the trustee advances loans to the securitisation vehicle through the issuance of TBIs and/or procuring asset- backed loans from end-investors. Practical points to note include the following. • TBIs are considered type II financial instru - ments under the FIEA, so the procurement and provision of brokerage activities in respect of TBIs have to be handled by a type II financial instrument exchange business operator licensed under the FIEA. • The concept of self-declaration of trust or declaration of trust was introduced in Japan pursuant to amendments to the Trust Act that came into effect in 2006 (the “2006 Trust Act Amendments”), following which it is now pos - sible for an operating company to securitise its assets through self-declarations of trust or declarations of trust, provided the operat - ing company – if required to do so by the characteristics of the securitisation structure involved (such as the number of TBI hold -
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