Germany Clarifies Impact of VAT Act on Securitizations

Moves by the German Ministry of Finance to clear up uncertainty regarding the implications for securitization SPEs of a new VAT law have been welcomed by Standard & Poor’s. Under Article 13(c) of the German VAT Act purchasers of non-bank receivables on which VAT falls due are liable for that VAT if the seller of the receivables does not fulfil its obligation to pay the VAT to the German tax authorities. There was concern about the implications this new rule might have for SPEs used to securitize German assets that are subject to VAT, as it could have created a potential liability of the SPE to the German tax authorities to pay the VAT that was levied on the receivables, particularly in the case of an originator’s insolvency. In a bulletin published on December 8, 2003, Standard & Poor’s expressed its understanding that such a far-reaching impact was not the intention of the German government and the hope that a swift solution to this issue could be found. Subsequently, Standard & Poor’s and its German counsel have engaged in a constructive dialogue with market participants and the German Ministry of Finance.

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