Italian real estate securitisations explained by the Revenue Agency

A recent ruling of the Italian Revenue Agency (Ruling No. 132 of 2 March 2021 or "Ruling 132") clarified the tax treatment of vehicles carrying out securitization transactions on proceeds deriving from the ownership of real estate assets or registered movable assets (e.g. cars, vessels, motorbikes, etc.) and real and personal rights over such assets under Article 7.2 of Law No. 130 of 30 April 1999 ("Securitization Law").

The real estate securitization at a glance

Article 23, paragraph 1, let. d), of Law Decree No. 34 of 30 April 2019 introduced Article 7.2 in the Securitization Law, which provides for the securitization of proceeds deriving from the ownership of real estate assets or registered movable assets through dedicated Italian securitisation vehicles ("Real Estate Securitization SPVs").

Article 7.2 of the Securitization Law sets out the mains features of Real Estate Securitization SPVs, as follows:

• Real Estate Securitization SPVs can only carry out transactions involving proceeds deriving from the ownership by Real Estate Securitization SPVs of real estate assets or registered movable assets and real and personal rights over such assets;
• the securitised assets and rights, the amounts arising from such assets and rights in whatsoever manner and any other rights resulting from securitization transactions carried out by Real Estate Securitization SPVs are segregated by provision of law from the assets of the same Real Estate Securitization SPVs and from assets resulting from other transactions;
• on the segregated assets no actions are allowed by creditors other than the creditors of the securitisation (mainly holders of the notes issued by Real Estate Securitization SPVs for the financing of the purchase of the securitised assets and rights, hedging counterparties, if any);
• obligations towards the holders of the notes issued by Real Estate Securitization SPVs should be exclusively satisfied by using the related segregated assets.
  Ruling 132 commented on corporate taxes, VAT and transfer taxes of the Real Estate Securitization SPVs.

Key findings of ruling 132

Ruling 132 regards a vehicle established under Article 7.2 of the Securitization Law which acquired the property of two photovoltaic plants from a LeaseCo (i.e. a special ReoCo (as defined below) acquiring distressed leased assets) as a result of the enforcement of the underlying leasing transactions. The acquisition of the real estate assets belonging to the photovoltaic plants by such Real Estate Securitization SPV was financed through the issue of a single tranche of unrated and unlisted notes subscribed by two financial institutions.
In Ruling 132 the Italian Revenue Agency clarified that:

1. for Italian corporate income tax ("CIT") purposes, due to the segregation of the assets provided by Article 7.2 of the Securitization Law, revenues and costs arising from the securitization transaction are not subject to CIT. However, should any amount be available to the Real Estate Securitization SPV after the discharge of all its obligations, such amount would be subject to CIT;
2. as Italian regional tax on productive activities ("IRAP") derives its taxable base from the accounting results, no taxation occurs as long as the assets of the securitization remain "off-balance sheet" for accounting purposes (as set forth in an accounting opinion released in the context of the relevant transaction);
3. interests and similar proceeds accrued under the notes issued by the Real Estate Securitization SPV in order to finance the acquisition of the real estate properties are subject to the tax regime provided by Legislative Decree No. 239 of 1 April 1996 ("Decree 239"), which at certain conditions ensures no withholding taxes in favour of qualifying investors;
4. real estate management activities carried out by Real Estate Securitization SPV on residential and instrumental properties are subject to the ordinary VAT regime pursuant to Article 10, paragraph 1, numbers 8) and 8-ter), of the Italian Presidential Decree No. 633 of 26 October 1972 (the "Italian VAT Code"). The Real Estate Securitization SPV is per se entitled to recover input VAT pursuant to Article 19 of the Italian VAT Code;
5. purchases of real estate assets from financial leasing companies as a result of the termination of the existing non-performing leasing agreements are not subject to ad valorem registration tax, cadastral and mortgage taxes pursuant to Article 7.1, paragraph 4-ter, of the Securitization Law. Ordinary taxation applies to other transfers in and out the securitisation.

The five principles explained 

The conclusions set out in Ruling 132 (as summarised in the previous paragraph) are based on the following arguments:

1. for CIT purposes, Article 3, paragraph 2, of the Securitization Law states that, in the context of a regular securitisation of receivables, assets, rights and proceeds deriving from the securitization are segregated by virtue of law and exclusively dedicated to serve the obligations towards the secured creditors (which mainly include the holder of the securitisation notes). Circular No. 222/E of 6 February 2003 of the Italian Revenue Agency clarified that, as income deriving from securitization transactions pertains to the secured creditors of the securitisation, no CIT applies on any revenues or gains deriving from the securitised receivables, with the only exception of amounts available after the discharge of all obligations of the securitization vehicle vis-à-vis the secured creditors at the end of the transaction. As the segregation principle is shared by Real Estate Securitization SPVs, Ruling 132 states that the CIT regime described above also applies to real estate securitisation transactions, i.e. rents collected by the Real Estate Securitization SPV and gains realised from the
   disposal of the real estate assets are not taxable;
2. IRAP tax base is directly calculated on the basis of the profit and loss account of a company. In the case at the hand, revenues and costs related to the segregated assets are treated for accounting purposes as off-balance sheet by the Real Estate Securitization SPV, resulting in their exclusion from the IRAP taxable base as long as such accounting treatment applies;
3. Decree 239 regime applies to notes issued by the Real Estate Securitization SPV pursuant to Article 7, paragraph 1, let. b-bis), of the Securitization Law. As a consequence, no Italian withholding or deduction applies on interest paid under the notes in favour of non-Italian resident persons that are resident, for tax purposes, in a country that allows for a satisfactory exchange of information with Italy to the extent that: (i) the notes are deposited, directly or indirectly, with a qualified institution; and (ii) a statement (autocertificazione) whereby the noteholder declares that is the beneficial owner of any interest on the notes and it is eligible to benefit from the withholding tax exemption is submitted to the qualified investor;
4. In ruling No. 18 of 30 January 2019, the Italian Revenue Agency clarified, inter alia, the VAT treatment of the acquisition, management and valorisation activities of real estate assets and movable assets carried out by real estate owned companies established under Article 7.1 of the Securitization Law ("ReoCos"). ReoCos operate as ancillary vehicles supporting the value of the real estate properties backing the securitised mortgage receivables in the context of a regular securitisation. The Italian Revenue Agency considered the ReoCo's activities over the real estate properties as complex real estate management activities, which are relevant for VAT purposes under Article 3 of the Italian VAT Code. In ruling No. 18 the Italian Revenue Agency also pointed out that transfers of real estate assets in favour of ReoCos are subject to the ordinary VAT exemption pursuant to Article 10, paragraph 1, numbers 8) and 8-ter), of the Italian VAT Code, unless the relevant seller exercises the option to subject them to VAT. By way of analogy, Ruling 132 considered the real estate management activities carried out by Real Estate Securitization SPVs similar to those carried on by ReoCos and, therefore, concluded in favour of the application of the ordinary VAT regime to transactions executed by Real Estate Securitization SPVs. Accordingly, the Real Estate Securitization SPV is supposed to deduct and recover VAT under the same rules applicable to an ordinary real estate company, also including the possibility to sub-compartmentalise and distinguish between the activity on VATable assets and on VAT-exempt assets, in order to maximise VAT recoverability;
5.  Article 7.1, paragraph 4-ter, of the Securitization Law is applicable where the purchase from financial leasing companies regards real estate assets deriving from the breach or resolution of existing financial leasing agreements. However, the additional benefits provided by Article 7.1, paragraph 4-bis, of the Securitization Law are not applicable to Real Estate Securitization SPVs as such provisions refers only to transfers made in favour of ReoCos. Hence, outside the case of nonperforming leasing transactions, the purchase and sale of real estate assets by a Real Estate Securitization SPV would be subject to ordinary registration and transfer taxes.

Take aways

Thanks to the guidelines now provided by the Italian Revenue Agency, Real Estate Securitization SPVs become  a valid instrument to invest in Italian real estate assets (but also registered movable assets and real and personal rights over such assets), alongside to Italian real estate funds, particularly from a tax point of view. Indeed, income realized by Real Estate Securitization SPVs are exempted from corporate taxes as well as those of Italian real estate funds; moreover, proceeds related to the notes issued by such SPVs should be exempt from withholdings and deductions and benefit from a regime that is wellknown in capital market transactions and particularly friendly for non-Italian investors. Although Real Estate Securitization SPVs do not benefit from an important reduction of cadastral and mortgage taxes on purchases and sales of real estate assets as Italian funds do, the Real Estate
Securitization SPV may offer flexible management fees and costs and more tailored solutions as to the management of the acquired assets than other more regulated structures.
Incidentally, Ruling 132 provides interesting insights into the securitisation of photovoltaic plants. However, it is crucial to identify the limits of such Real Estate Securitization SPVs in terms of management requirements (as also recalled by the Securitisation Law by reference to the certain provisions dictated for the ReoCos) and active use of business assets such as hotels and plants. To this extent, the role of commentators and market practice will be pivotal. Our cross-practice team is available to support with further insights.

If you have any queries on any of the matters dealt with in the present note, please contact us or your usual Ashurst contacts.