Securitisation was authorised in Thailand by an Emergency Decree following the 1998 economic crisis.

The decree enables a Special Purpose Vehicle (SPV) to be established to facilitate the practice which, broadly, is the acceptance by the SPV of transferred assets and the issuance of securities - in consideration of the transfer - for sale to investors with the returns to the holders of such securities being determined by the streams of revenue flowing from the transferred assets.

Usually, that transfer of assets to the SPV occurs at book value, giving rise to no gain or loss to the transferor, and the transferor owns all of the issued shares of the SPV.

Put simply, securitisation is a process which transforms illiquid assets such as accounts receivable and/or loans arising from real-estate acquisitions, automobile hire-purchase, or credit-card usage and the like into marketable securities such as bonds or debentures.

Such bonds or debentures are then sold into the investment market-place to investors, who may be individuals, companies, or managed funds.

The securitisable assets may be any rights over future income streams.

The benefits of securitisation include increased liquidity for the original owner of the assets securitised, which can help that enterprise to further invest or repay debt using this new source of funds, which usually carries lower financing costs.

For financial institutions, securitisation helps maintain the required financial leverage. It also promotes investor liquidity and the availability of alternative investor offerings.

To promote securitisation in Thailand, the Revenue Department issued a public ruling concerning the tax concessions that apply to securitisation transactions approved by the Securities and Exchange Commission under rules, procedures and conditions stipulated by Royal Decree.

Thus the transfer of assets by an owner to Special Purpose Vehicle to facilitate securitisation is exempt from value-added tax, specific business tax and stamp duty.

Also, should any of the securitised assets later be transferred back to the original owner from the SPV, an exemption will apply eliminating any value-added tax, specific business tax or stamp duty.

Further, the SPV is, subject to certain conditions, now exempt from corporate income tax.

A condition enabling exemption from corporate income tax is that the transferor cannot receive a dividend distribution from the SPV until its status as an SPV ceases.

If a Thai individual resident taxpayer were to invest in such bonds or debentures, then the SPV would be required to deduct 15-per-cent withholding tax from any interest distributions in that tax year, which the individual can treat as a final tax or include the interest income in his or her income-tax return and claim a credit for the tax withheld.

If the Thai resident investor disposes of the bonds/debentures at a profit, then he/she is required to include any gain in the relevant income-tax return.

Following the introduction of these tax concessions, the securitisation of debt-related income streams should become more commonplace in the Kingdom to the benefit of businesses, investors and the economy as a whole.

Adirek Limsiriwong

For further information, contact Adirek Limsiriwong, associate director of KPMG Phoomchai Tax & Legal Ltd, on (02) 677 2426 or by e-mail at adirek@kpmg.co.th.