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Why Luxembourg
Luxembourg remains one of the most attractive securitisation hubs in Europe. Its competitiveness lies in its offering of a robust but at the same time flexible legal and tax framework, making Luxembourg often more attractive than other European countries.
This has been strengthened by the modernisation of the Luxembourg Securitisation Law early 2022 which now also allows for active management of debt portfolios and the refinancing through loans.
In the different European statistics, Luxembourg usually ranks first or second with regards to the number of securitisation vehicles and transactions. We are optimistic that the securitisation market will further grow and that Luxembourg will keep its position as prime location for securitisation transactions in Europe.
One of the key advantages of Luxembourg is the concept of “compartments”, segregated parts of assets and liabilities within one entity. Contrary to other jurisdictions, in Luxembourg this segregation of assets between compartments is defined by law and we often observe structures with more than ten compartments, some even several hundred.
The Luxembourg Securitisation Law is an opt-in law and provides a wide definition for securitisation, namely any type of assets or risks can be securitised and refinanced by the issuance of financial instruments. This is significantly different to the definition of the European Securitisation Regulation which refers to the transfer of credit risk only and requires the refinancing to be split into multiple subordinated tranches. The Luxembourg Securitisation Law caters for this type of securitisation but also goes beyond.
Furthermore, there is no limitation on the investor basis, investments into a Luxembourg securitisation vehicle are open to all types of investors. A direct supervision by the Luxembourg regulator CSSF is only required when a continuous issue to the public occurs, which is not often the case.
All in all, Luxembourg securitisation vehicles are a very efficient tool for financing or creating investment opportunities at a reasonable cost and quick time-to-market.
Key topics
Securitisation in Luxembourg video
The Luxembourg Securitisation Law
The Luxembourg Securitisation Law offers an attractive regulatory framework for setting up workable securitisation structures in Luxembourg at reasonable cost. The key features which make the Luxembourg Securitisation Law attractive in practice are summarised as follows:
Enormous flexibility in entity establishment from a cost and structural point of view;
Legal certainty;
Broad bankruptcy remoteness mechanisms;
Qualified service providers in Luxembourg;
Tax neutrality.
New Luxembourg Securitisation Law
Such enormous flexibility is also the result of having studied the different securitisation transactions effected on the Luxembourg market since the establishment of the Securitisation Law. In addition to the attractiveness of the Luxembourg Securitisation Law, the Luxembourg market offers some soft factors which should not be underestimated:
- High degree of expertise of market players (banks, corporate service providers, auditors, etc.);
- Large range of market players already present in Luxembourg;
- Liberal tradition in the sense of more flexibility compared to other European countries; and
- Proximity and accessibility of the regulator (precisely for regulated securitisation vehicles).
Focus on the current status of the topic
The Luxembourg Securitisation Law of 22 March 2004 historically allowed securitisation companies to achieve tax neutrality as the commitments towards shareholders and creditors were fully tax deductible without any limitations.
However, since the transposition of the Anti-Tax Avoidance Tax Directive 2016/1164 of 12 July 2016 into Luxembourg tax law as from 1 January 2019, securitisation companies can be subject to interest limitation rules that can jeopardize their tax neutrality.
Focus on the challenges/issues inherent to the topic for the clients
When setting up a securitisation structure, the clients and their advisors should look at the different drivers that can influence the choice of the securitisation structure that are mainly the following:
- the need or not to get treaty access to mitigate any tax leakage in the jurisdictions of the investments;
- the possibility or not to benefit from one of the exemptions of the interest limitations rules provided by the law that has transposed the Anti-Tax Avoidance Tax Directive 2016/1164 of 12 July 2016 into Luxembourg tax law;
- the nature of the expected income and gains to be derived by the securitisation vehicle;
- and last but not least the way the client expects the investors will finance the securitisation vehicle;
How PwC can help
PwC can help clients to choose the most tax efficient securitisation structure among the different alternatives that are offered by the Luxembourg Securitisation Law of 22 March 2014 (i.e. securitisation companies, securitisation companies with fiduciary arrangements or securitisation funds) in order to maintain a tax neutrality at best or at least to mitigate the adverse tax consequences arising from the introduction of the interest limitation rules.
Following the positive feedback we received about our survey on the Luxembourg securitisation market in the previous years, we have asked your opinion again in 2022 and we are now happy to present the results of this year’s survey.
Since 1 January 2019, the EU Securitisation Regulation (the “Regulation”), is applicable to EU Securitisation transactions whose securities (or other securitisation positions) are issued on or after that date.
Focus on the current status
We expect digitisation to remain one of the top priorities for the Luxembourg financial centre for the upcoming years. Many banks and other financial services companies have already started their transformation and more will follow suit.
Focus on the challenges
Digital transformation can lead to new opportunities, but new digital challenges need to be tackled. In securitisation, one of the biggest challenges is the complexity of the business.
How PwC can help
Our team can concentrate on what really matters: auditing and looking at the complexity of your business. As a key enabler, technology is at the heart of the PwC audit process. We continually invest in emerging technologies to bring additional value to our clients. Our specialised tools enable us to produce and share meaningful results and new insights.
Who we are?
Our PwC Luxembourg Securitisation Core Group consists of 16 Partners & Directors leading more than 80 Securitisation experts. Whatever your requirements, our dedicated audit, tax and consulting teams have the necessary experience to guide you through the realms of the Luxembourgish market as well as local and European regulations and will make achieving your goals their number one priority.
Assurance
Our global presence allows us to provide all audit and audit related services for special purpose entities used for securitisations and structured finance transactions, such as:
- Statutory and contractual audits
- Limited Reviews and agreed-upon procedures
- Audit related services, such as accounting advice and support on capital market transactions
In every case, the PwC audit and audit related service is underpinned by our deep industry knowledge, wide international experience, and global network of skilled professionals.
Tax
- Review of the existing securitisation structures from a corporate income tax (i.e. impact of the interest limitation rules) and VAT perspective to identify the areas of risk and propose remediation actions.
- Assisting clients to choose the most tax efficient securitisation structure among the different alternatives that are offered by the Luxembourg Securitisation Law of 22 March 2004.
- Provide tax compliance services like preparing and filing corporate tax returns for securitisation companies, FATCA and CRS reporting obligations, VAT registrations, preparing and filing VAT returns.
Advisory
Review of the existing securitisation structures from an eligibility perspective under the Securitisation Regulation and UCITS Directive
Assist Management Companies and AIFMs to implement procedures and processes when the funds they manage invest in securitisation structures
Assist on CSSF filings in relation to the amended Article 4 of the Securitisation Regulation
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Contact us
Xavier Balthazar
Advisory Partner, Asset Management, Regulatory & Compliance, PwC Luxembourg
Tel: +352 49 48 48 3299
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