Spanish regulators continue to re-shape securitization legislation in an effort to bring the country up to par with the leading issuers in Europe. The latest development does away with the cumbersome withholding tax.

Law 23/2005 (see ASR 11/21/05) published on Nov.19 in Spain's official Journal saw its Second Final Provision passed at the beginning of December. The law's final provision exempts securitization bonds issued by Spanish asset-backed and mortgage backed Fondos from withholding tax for non-resident bondholders provided that these bondholders are not tax haven residents, explained the European Securitization Forum.

"The tax change intends to open up the foreign market of RMBS/ABS issued by Spanish securitization vehicles (FTHs/FTAs), by bringing the withholding tax treatment in line with the most advanced (i.e., the most privileged or better treated) Spanish securities in the market," said Patrice Doat, a partner in Gide Loyrette Nouel's finance/project finance department.

In essence, subject to certain formal requirements, all foreign investors holding RMBS/ABS issued by Spanish securitization vehicles (FTHs/FTAs) will now receive interest payments net of any withholding tax, unless residing in a tax haven, which should increase the foreign appetite for Spanish securitization notes. "Foreign investors which thus far were turned away by a less-than-favourable withholding treatment (e.g., those residing in certain non-E.U. tax treaty countries), will now be in a position to acquire these notes without incurring the cost of withholding tax," said Doat. "Therefore, notes will be offered to a larger number of potential foreign investors. Needless to say, the liquidity in the secondary markets for existing deals should also be enhanced."

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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