There are no shortage of legal and tax-related impediments to domestic securitization in Brazil, but a newly enacted tax reform is likely to make domestic loan- and mortgage-backed securitizations that little bit easier.

The tax in question is Cofins, a federal tax applied to the gross revenues of all Brazilian financial entities. Until the reform, only financial institutions were allowed to deduct deposit expenses from the gross revenues that constitute the tax basis for Cofins a treatment that didn't apply to securitization vehicles. Consequently, if banks kept assets on their balance sheets they were allowed to deduct deposit expenses, but if they securitized those assets they would automatically lose that advantage.

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