Fostering of the securitization transactions: ReCos and real estate collaterals

ReCos and real estate collaterals

In this article we give you an overview of the provisions that have been recently introduced by the law decree number 34.



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General overview

Certain provisions have been recently introduced by the law decree number. 34 of 30 April 2019 (“Growth Decree”), converted into law by the law number. 58 of 28 June 2019, aiming at fostering the disposal of non-performing loans through the use of special purpose vehicles (hereinafter “SPV”) in the context of securitization transactions.

Inter alia, relevant amendments were made to the Italian securitization law (i.e. law number. 130 of 30 April 1999) with respect to real estate companies (hereinafter ReCo) established to support the securitization of non-performing loans.

In the context of a securitization of mortgage loans, ReCos are incorporated with the aim of purchasing, managing and developing the immovable properties operating as collateral to the portfolio of non-performing loans acquired by the SPV.

It is yet unclear whether a ReCo must be owned by the securitization vehicle or not.

In absence of specific indications of the Italian law, multiple scenarios could occur:

1. The securitization vehicle directly holds the participation in the ReCo.
2. Noteholders (i.e. subscribers of the notes issued by the securitization vehicle) directly hold the participation in the ReCo.
3. “Orphan” ReCo (i.e. ReCo is held by entities external to the securitization transaction. Some authors have pinpointed that scenario 1 should be excluded because the securitization vehicle should not be allowed to hold a shareholding.

ReCos and direct taxes

The new law expressly states that ReCos operating in the exclusive interest of the securitization should be deemed “tax neutral” for Italian Corporate Income Tax (CIT) purposes (i.e. in the hands of the ReCos, revenues deriving from the holding, managing or disposal of the mentioned immovable properties are exempted from Italian corporate income tax and local tax).

Such activities are performed by the ReCos in favour of the SPVs and the subscribers of the asset backed securities (i.e. noteholders) issued by the SPVs.

Before this decree the tax treatment of ReCos was, in fact, controversial.

In the two published rulings number. 56 of 15 February 2019 and number. 18 of 30 January 2019, the Italian tax authorities stated that for CIT purposes, differently from the SPV which is deemed as a segregated asset pool for Italian tax purposes and, consequently, it does not qualify as taxable (except for any amount leftover to SPV after that all the notes have been reimbursed), the ReCo is an entity ordinarily subject to CIT on the income earned from its activities, even though performed to service the securitization process and in the exclusive favour of the SPV.

For the first time, the Growth Decree provided for a definition of the CIT treatment to be applied to ReCos and with the aim of superseding the said Italian tax authorities’ interpretation.

Assets, rights and amounts deriving from the management of real estate properties made by the ReCos, as well as any other right acquired in the context of the securitization of non-performing loans qualify as a segregated pool of assets.

The new provisions state that the activity of acquiring, managing and developing assets securing non-performing loans should not be carried out by the ReCo as its own investment activity, but rather as a service activity in the exclusive interest of the securitisation, with all proceeds (net of incurred expenses) deriving from such activity due and transferred to the SPV.

As a consequence, ReCos are “tax neutral” for CIT purposes, being taxed merely on any amount leftover to the ReCo after that all the notes have been reimbursed.  Thus, in the light of the new provision, the same income tax regime applicable to the SPVs also applies to ReCos. The proceeds deriving from the acquisition, management and disposal of real estate properties carried out by ReCos qualify as “off-balance sheet” items.

ReCos and indirect taxes

Further, a new provision concerning indirect taxes on the transfer of real estate properties was inserted.

Such new rule states that acquisitions of real estate properties made by ReCos are subject to registration tax, mortgage and cadastral taxes applied in a non-material fixed amount (€200 for each of such transfer taxes), irrespective of the nature of such properties.

According to the new paragraphs 4-quarter and 4-quinquies of the same provision, the same favourable tax regimes (indirect taxes in a fixed amount - €200 for each) applies also to subsequent disposals of real estate properties made by the ReCos to:

  • Purchasers that carry on a business activity, on condition that the purchaser undertakes to transfer the relevant property within five years from the purchase, and
  • Individuals qualifying for the so-called “main dwelling tax incentive”.

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