Advantageous taxation for securitisation vehicles in Luxembourg

Tax neutrality is key for the success of securitisation transactions

Generally, profit is not the primary intention within a securitisation vehicle and any profit realised on the underlying assets is passed to the investors.

Therefore, depending on the structure used, Luxembourg tax legislation has been adapted as follows:

Securitisation companies are fully taxable, but payments made or committed to investors are fully tax deductible. Securitisation companies might benefit from EU directives and double tax treaties. Securitisation companies are nevertheless subject to a minimum taxation.

Securitisation funds are treated as mutual investment funds which are transparent (fonds commun de placement). Investors are deemed taxable on the proportion of the shares they hold in the fund and are taxed according to the rules in force in their country of residence. These funds are exempt from tax, but cannot benefit from double tax treaties agreed by Luxembourg.

Securities issued by the securitisation undertakings are either shares, bonds or hybrid instruments which generate a yield directly linked to the underlying assets held by the securitisation SPV. The coupon payable to the investors/subscribers is not withheld at source.

As the margins made between the income stream and the outgoing yield are usually very narrow, it is important that each securitisation transaction is subject to a strong upstream analysis to ensure that the securitisation process will not lead to any tax burden.

Creatrust helps securitisation transaction promoters by providing assistance on accounting, and tax and legal implications of the securitisation structure.

Creatrust can also set up the securitisation vehicle and provide securitisation vehicle administration services.