No one was surprised last week when the European Court of Justice ruled to validate tax exemptions in Ireland. All the same, the industry welcomed this much needed clarification in the EU's disjointed tax environment, sources said.

The ruling was made in a case that involved Abbey National and the U.K. government. The case centered on the power of EU member states - in this case Ireland - to define what activities comprise management of special investment funds and on whether the services of trustees and third party administrative managers should be exempt from VAT. Ireland, Luxembourg and France treat fund administrative services as tax exempt but other EU jurisdictions, including the U.K., don't.

The European Court ruled that administrative management of special investment funds by third parties should be exempt from VAT. While hardly stirring news, the decision clarifies Irish legislation and confirms its approach to structures like securitizations.

"In theory, European VAT laws should be the same across the EU, but practically speaking, they are all not similar," said Turlough Galvin at Matheson Ormsby Prentice. "The decision is not a surprise. We always expected it but it's confirmed that the Irish approach is correct."

Had the courts ruled the other way, Irish service providers would have to charge tax on their services. That could have reduced the appeal of domiciling SPVs in Ireland. "The ruling can only be a positive thing for the securitization market in Ireland," said another source from a Dublin-based corporate service provider.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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