The Australian Government has been moving swiftly to enact legislation implementing the OECD’s Pillar Two Global Anti-Base Erosion rules (“GloBE Rules”). The securitisation industry has had success in working with Treasury to incorporate amendments to those laws to account for the unique features and needs of securitisation vehicles. With that success, there should be continued certainty for trustees, rating agencies, noteholders and other participants in securitisation transactions regarding the treatment of the various payment flows for tax purposes.
Broadly, the GloBE Rules seek to impose a 15% minimum global tax on multinational enterprise groups exceeding €750 million in annual revenue over a specified number of years via the imposition of top-up taxes on entities within the group. A tension naturally arises in relation to securitisation vehicles, which depend on the predictability of their tax liabilities both in terms of quantum and timing.
On 21 March 2024, the Australian Treasury released exposure draft legislation to implement the GloBE Rules. This included the release of primary and subordinate legislation, based on the evolving OECD model rules, guidance and commentary.
In June 2024, the OECD published administrative guidance recognising the unique position of securitisation entities and recommending that top-up tax liabilities not be imposed on securitisation vehicles.
On 4 July 2024, the primary legislation bills (but not subordinate legislation) were introduced to the House of Representatives and subsequently referred to the Senate Economics Legislation Committee. The Australian Securitisation Forum, represented by David Wood (partner, KWM) and Chris Dalton (CEO, ASF), appeared before the Committee to discuss the issues that could potentially arise for securitisation vehicles under the existing bills. These issues are:
- Where securitisation vehicles are members of a multinational enterprise group affected by the GloBE Rules, they may be subject to top-up taxes triggered by the activities of another entity elsewhere in the group. This could (and probably would) be an entity in another jurisdiction with little connection to the securitisation vehicle. Such top-up tax would be the imposition of a primary liability. This is potentially less of a concern for trust vehicles given their flow-through tax treatment, but is a live issue for corporate vehicles.
- The newly introduced joint and several liability provisions in Subdivision 128-A of the Treasury Laws Amendment (Multinational—Global and Domestic Minimum Tax) (Consequential) Bill 2024 (Cth), not previously in the exposure draft, are of particular concern. These provisions make all group entities jointly and severally liable for any other group entity’s top-up primary tax liability (a secondary liability). Joint and several liability for top-up taxes – which cannot be ousted using a tax sharing agreement as the rules do not operate by reference to a consolidated tax group - would make it almost impossible for participants to be certain that securitisation vehicles will be insolvency remote.
It was submitted that an exclusion from joint and several liability based on the existing definition of an insolvency-remote special purpose vehicle in section 820-39 of the Income Tax Assessment Act 1997 (Cth) would be the simplest and most effective solution to issue 2, rather than the creation of a new definition of securitisation vehicle.
On 14 August 2024, the Committee issued its report, accepting that Treasury have “understood and are considering the issues raised by the ASF regarding the potential impacts on securitisation in Australia”, that implementation details would be left to the disallowable instrument rather than primary legislation “in order to retain flexibility for matters such as those concerning securitisation”, and recommending that the bills be passed.
Following the Committee’s report, late last week the primary legislation was amended to specifically exclude “GloBE Securitisation Entities” from joint and several liability under the GloBE Rules. That definition is, at this stage, referable to the subordinate legislation which has yet to be published in its amended form. It is hoped that the Treasury will adopt the section 820-39 definition as proposed.
It awaits to be seen whether further amendments are made in the subordinate legislation concerning the primary liability issue. Participants in the securitisation industry should watch this space closely for developments.
