UK Law and Practice Contributed by: Guy O’Keefe, Richard Jones, Oliver Wicker and Kate Patane, Slaughter and May
waterfalls even in circumstances in which pay - ments to noteholders are delayed or not made in full due to a shortfall in cash generated by the securitised assets. In addition, the SPE is typically structured so as not to form part of the corporate group of the originator, and the transfer of assets to the SPE is structured as a sale.
• the SPE is generally not involved in business activities other than those that are incidental to its role as an SPE in the securitisation. 7.3 Withholding Taxes Withholding Taxes and Cross-Border Payments Received by the SPE The financial assets securitised in UK SPEs are typically UK financial assets, so UK with - holding taxes are not usually an issue. Where cross-border payments are received by a UK resident SPE, withholding taxes may be relevant, depending on the jurisdiction, but treaty or other reliefs may be available to minimise these taxes. Withholding Taxes and Cross-Border Payments Made by the SPE The SPE is subject to UK withholding tax at the basic rate of income tax (20%) on interest paid on the securitisation notes it issues, unless an exemption applies. A commonly used exemp - tion is the “quoted Eurobond” exemption where the notes are listed on a “recognised stock exchange” such as the London Stock Exchange or are admitted to trading on a “multilateral trading facility” operated by a “regulated rec - ognised stock exchange”, being a recognised stock exchange that is regulated in the UK, EEA or Gibraltar. The “qualifying private placement” exemption may also be available if the SPE issues notes to investors resident in jurisdictions that are party to a double tax treaty with the UK that includes a “non-discrimination” article. In some securitisations with a more limited number of counterparties, a normal claim for treaty relief may also be possible. 7.4 Other Taxes UK VAT on servicing fees incurred by the SPE may be relevant, depending on the nature of the services. Where possible, the servicer will usu - ally look to provide the services in a way that
7. Tax Laws and Issues 7.1 Transfer Taxes
Generally, there are no taxes payable by the SPE on the transfer to it of the financial assets from the originator. There may be potential stamp taxes on the transfer of certain interests in real estate or equity-like securities to the SPE, but this is usually not an issue for securitisations. 7.2 Taxes on Profit Provided that the SPE satisfies the conditions imposed by the Taxation of Securitisation Com - panies Regulations 2006, the SPE will be charge - able to corporation tax only on the retained profit after it has paid its expenses in accordance with the transaction waterfall. Practitioners will there - fore generally structure the SPE so that it ben - efits from this tax regime by ensuring that: • the SPE falls within certain categories of company as defined by the regulations; • payments (other than the retained profit and any amounts reasonably required to cover losses or expenses and support creditwor - thiness) flow through to investors within 18 months of the end of the accounting period; • the SPE is not party to any transactions for which UK tax avoidance was one of the main purposes; and
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