The New Securitisation Transactions (Deductions) Rules

By virtue of the the Securitisation Transactions (Deductions) Rules, 2011 [L.N. 324 of 2011] a company, including an investment company, a commercial partnership or a trust created by a written instrument, may deduct from its chargeable income sums payable to the originator for the transfer to the vehicle of securitisation assets or pursuant to an assumption of risks by the originator.  Premiums, interest or discounts relating to financial instruments issued, or funds borrowed, by the vehicle to finance the above acquisition of assets or the assumption of risks and any expenditure incurred by the vehicle in respect of the day to day administration of the vehicle itself, its assets and risks, are also deductible. 

Following the above and any other applicable deductions under the Income Tax Act, the vehicle may opt to claim a further deduction of an amount equal to the remaining chargeable income. This option is to be made upon the written consent of the originator.

Where the vehicle opts to deduct the above sums payable to the originator, such sums together with any further deductions, including losses taken into consideration before further deductions, will be deemed to be income chargeable to tax in the hands of the originator.  The income will be deemed to be chargeable in the same year in which it arises, which year is deemed to be the year in which the deduction is claimed. 

Where a securitisation contract involves the originator or an entity which is controlled and beneficially owned directly or indirectly to the extent of more than 50% by the same shareholders, and the sums decided upon have the effect of reducing their tax liability abusively, the Commissioner of Inland Revenue may deem the contract or transaction to be a profit-making scheme.