New developments on the VAT directive have brought German legislation a step closer to properly accommodating domestic true sale vehicles. A circular published by the German Ministry of Finance confirms that the receivables purchaser is not liable for VAT incurred by the seller in the origination of the receivables.
According to analysts at Deutsche Bank, under the VAT Act enacted at the beginning of this year, the purchaser of receivables may be held liable for VAT incurred by the seller in the origination of such receivables. At the time, the decision raised concerns on how it might impact potential cash liabilities for German cash securitization SPVs in the case of a seller's insolvency. The new tax guideline released at the end of May indicates that the VAT Act will not apply to transactions in which the seller retains the servicing functions. For transactions employing a third-party servicer, however, the purchaser/SPV will be liable to pay the VAT if the purchase price for the receivables is less than their nominal value and has not been paid at a prior date.