The U.K. HM Revenue & Customs has issued draft regulations that will provide a new tax regime for securitization companies. The new regulations are expected to clarify certain provisions of the International Financial Reporting Standards (IFRS) and U.K. GAAP and quash concerns regarding their effect on securitization taxation.

The draft regulations address tax issues arising from the implementation by U.K. companies of the IFRS, or of the new U.K. GAAP that retain the principles of the IFRS, particularly the adoption of fair value accounting for derivatives. According to Fitch Ratings analysts, the change in accounting could have led to unfunded tax liabilities arising in U.K. Special Purpose Entities (SPEs) - that were previously mostly tax neutral - due to taxable profit being broadly derived from accounting profit. Tax liabilities are typically a senior expense in the transaction's priority of payments, although ratings could be threatened where the extent of such amounts are not easily predictable.

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