USA Law and Practice Contributed by: Bjorn Bjerke, Corey Reis and Joshua Kopel, A&O Shearman
In the case of foreign SPEs that are treated as corporations for US income tax purposes and that rely on not being taxed in the USA, there are various sensitive activities that could give rise to adverse tax treatment. Because of the significant consequences to the securitisation transaction, the rating agencies tend to require an opinion to the effect that the SPE’s activities would not amount to it engaging in a US trade or business. 8. Accounting Rules and Issues 8.1 Legal Issues With Securitisation Accounting Rules The intersection of legal and accounting require - ments often plays a significant role in structur - ing a securitisation transaction. For example, whether, and with whom, to consolidate a secu - ritisation SPE can be a complex analysis that hinges on identifying who controls the aspects of the SPE that most significantly impact the SPE’s performance. This analysis will typically focus on the entities that have the ability to direct the SPE’s activities (and may also look at activities that took place prior to the relevant transaction). While that analysis is not a legal analysis per se, it will involve a review of the various contractual rights existing in the transaction documents. As such, an awareness of the types of features that drive the consolidation analysis is often important in structuring the SPE and drafting the relevant transaction documents. Legal and accounting criteria also come togeth - er as part of the true sale analysis. One of the requirements for achieving sale accounting for
financial assets under US Generally Accepted Accounting Principles (GAAP) is that the trans - ferred financial assets have been isolated from the transferor even in bankruptcy or other receiv - ership, and a part of that analysis looks to the legal true sale analysis. 8.2 Dealing With Legal Issues Under the GAAP accounting rules, “a true sale opinion from an attorney is often required to support a conclusion that transferred financial assets are isolated from the transferor and its consolidated affiliates. In addition, a non-con - solidation opinion is often required if the transfer is to an affiliated entity” (ASC 860-10-55-18A), although the opinion may not be required if the accountants are comfortable “that the appropri - ate legal opinion(s) would be given if requested” (55-18B). The accounting literature includes commentar - ies on the legal opinion requirements, including the opinion expressly mentioning each area of continued involvement between an originator and its affiliates and the securitisation SPE. The accounting standards also include a discussion of various types of qualifiers and assumptions that are deemed not to be appropriate for account - ing purposes. For example, an opinion assuming that the transfer is a true sale for accounting pur - poses would have to carve out the legal isolation analysis from such assumption. Consequently, a true sale and non-consolidation opinion deliv - ered as part of a securitisation transaction may receive additional comments from accountants relating to assumptions and qualifications that are viewed as potentially problematic under applicable accounting literature.
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