European Parliament passes new securitisation rules

 European Parliament passes new securitisation rules

European Parliament passes new securitisation rules

Mar 29 2021
In its plenary session held on 25 March, the European Parliament passed the EU securitisation recovery package.  Among changes to the STS Regulation and the Capital Requirement Regulation, adjustments were made to the "Article 4 – Requirements for SSPEs" provisions that have an impact on Australian issuers selling their securities to EU regulated investors. 

The initial EU proposal put forward in December 2020 explicitly restricted investment in “SSPEs” from those countries listed in Annex I as “harmful tax regimes” and also from those countries listed as “non-cooperative jurisdictions for tax purposes” in Annex II.  The EU included Australia in the Annex II list because its Offshore Banking Unit (OBU) tax regime does not address issues raised at the OECD’s 2018 Forum for Harmful Tax Practices (FHTP).  The EU’s position is broadly that securitisations should not be exploited for money laundering or tax evasion purposes and has listed those countries in Annex I and II because they have failed to resolve international concerns on unfair tax practices. 
 
Following extensive advocacy efforts by the ASF, Association for Financial Markets in Europe (AFME) and the Australian Government, the strict prohibition on investment in SSPEs in Annex II listed countries has been removed.  A significant amount of effort went into allaying EU concerns that Australia employs harmful tax practices and emphasising the importance of Australia’s long-established, high quality, legally robust and well-functioning securitisation market. 

The EU agreed revised position will permit an EU investor to invest in SSPEs from Annex II listed countries provided an investor notifies the potential investment in securities issued by that SSPE to the tax authorities of the EU member state in which the investor is resident for tax purposes.   This information may be used to assess whether the investor derives a tax benefit.  The relevant text adopted by the European Parliament at the plenary can be found here on pages 26-27.  Despite the tax issue around Australia’s OBU regime featuring in the recent EU securitisation rules changes, there is no link between the OBU regime and typical Australian market SSPEs (better known in the Australian markets as special purpose vehicles (SPVs)) given their tax neutral, non-recourse and bankruptcy remote characteristics.
 
In the background, the Australian Government has been reconsidering its position on OBUs and announced on 12 March that it would introduce legislation to reform Australia’s OBU tax regime to address the concerns of the FHTP.  The Treasury Laws Amendment (2021 Measures No.2) Bill 2021 was introduced into Parliament on 17 March. The legislation will close the OBU regime to new entrants and, after a proposed grandfathering period of 2 years, the concessional tax rate of 10% will be removed and the corporate tax rate of 30% will apply.  The wind down of the OBU regime is clearly intended to ensure that Australia meets the expectations of the FHTP. 

The ASF understands that the OBU amending legislation is likely to be passed in the parliamentary winter sitting in or about June.  If and when the OECD approves Australia’s approach to reforming its OBU tax regime, there is an expectation that the EU will thereafter remove Australia from Annex II.  The timing for this to occur is presently unclear and will largely depend on the response of the OECD.  Australia’s commitment and efforts to reform its OBU tax regime will be considered at a meeting of the OECD in April. 
 
The ASF will closely monitor these events and when timing becomes clearer over the course of the next couple of months we propose to host a member briefing. 

In the meantime, the ASF will collaborate with a number of key stakeholders to develop an information statement on the Australian securitisation market which will be available for Australian issuers to provide to EU investors to assist relevant EU member state tax authorities better understand the nature of an Australian securitisation investment as part of the notification process required by the amended Article 4.
 
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