Argentina: Securitization of Consumer Loans

Last Updated: 24 October 2011

Article by G. Gotlib, M. Skiadaressis and J. Tobias*

This article provides an overview of securitization in Argentina, and considers the tax treatment thereof.

1. Securitization Overview

Driven by strong economic growth and a resurgence in consumer credit, consumer loans, personal loans and credit cards, the past five years have seen a solid growth in the securitization of consumer loans. Banks, home appliance retail chains and consumer finance companies have used this mechanism for years, hence the prediction that these types of securitizations are to remain as the base of the market. This assumes the expectation that banks will continue focusing on retail lending.

Numerous factors have encouraged the use of this technique, including:

(1) the current rate of inflation (approximately 25%), which in turn has fuelled a strong consumer demand because there is no incentive in saving in the local market,

(2) the unattractive interest rates of term deposits, which leads investors to seek better investment opportunities,

(3) the absence of investment opportunities with similar rates of return to those obtained through securities issued by a trust (between 13% and 16%),

(4) the absence of a long-term credit market due to the high cost of funding, which has led banks and companies to focus on consumer financing (deposits are usually short term, and mortgage loans are long term),

(5) the possibility for banks and retail chain companies to transform illiquid assets into liquid assets, while at the same time obtaining balance sheet relief,

(6) the possibility of transferring the collections risk from the originator of the credits to the investors,

(7) tax advantages that have been in place for years,

(8) an improvement in the mechanisms for monitoring collections and

(9) cheaper funding costs.

Furthermore, although there was a relative decrease in capital market transactions in 2008 due to the elimination of private pension plans, a new player, the Argentine social security agency (Administración Nacional de Seguridad Social, ANSES) has emerged as a large investor adopting securitizations in order to fuel the economy.

2. Legal Framework

2.1. Securitization

"Securitization" can be defined as a financial transaction in which assets are pooled and securities representing interests in the pool are issued. In this way, illiquid assets are transformed into liquid assets. For example, a company that grants consumer loans aims to raise money in order to grant more loans. It can sell its existing loans, but it is unlikely to find a strong and liquid secondary market to sell such loans. A good alternative in this scenario would be to pool the consumer loans and sell securities or interests in the pool to investors, which, in turn, may find this investment more attractive than others. The debtors of the consumer loans will continue paying their debts, but such cash will flow to the investors (once expenses are paid).

In general, any class of assets with a relatively predictable cash flow can be securitized. The most common assets include auto and consumer loans, credit cards, mortgages, corporate debt and future revenues, and lease payments. However, in Argentina certain requirements are imposed in order to obtain beneficial tax treatment. For example, the assets must consist of credit instruments and must be homogenous (see 3.).

2.2. The Trust Law

2.2.1. Trusts in general

On 9January 1995, Law 24,441 (the Trust Law) introduced the trust concept in Argentina. Under this principle, a trust will be created upon the transfer by one person (settlor) of trust ownership over certain assets to another person (trustee), who undertakes to exercise it for the benefit of whomever is appointed in the relevant agreement (beneficiary) and to transfer the same, upon the expiration of a term or upon fulfilment of a certain condition, to the settlor, beneficiary or trustee. Upon the proper creation of the trust (including certain formalities), and without limitation, the registration of transfers in the relevant registries (if so required) of the ownership of the assigned assets by the trustee or notifications to the assigned debtor, as the case may be, the trustee will become the owner of the assets vis-à-vis third parties. If such requirements are not met, the trust's assets will be vulnerable to possible claims of creditors of the settlor.

Moreover, provided that the transfer of ownership does not constitute a fraudulent conveyance, the trust property forms an estate separate from that of the settlor or the trustee. In this respect, the trust property will be held free from any individual or collective action by the trustee's creditors, and will also be held harmless from action by the trustee's creditors, except where such action arises from wilful misconduct or fraud. The beneficiary's creditors may exercise their rights over the proceeds of the trust property, and subrogate in the beneficiary's rights.

The Trust Law provides certain requirements that should be included in the trust agreement. Among others, the trust agreement must specify:

  • the assets assigned in trust;
  • the manner in which other property may become part of the trust;
  • the duration or condition for fiduciary ownership, which term of duration may never exceed 30 years as of the date it was created;
  • the rights and duties of the trustee, and the manner in which the trustee will be replaced in the event of termination of the trustee's tenure; and
  • the possibility of appointing a manager for administering the assets.

2.2.2. The trustee

Any individual or entity may be appointed as trustee of an ordinary trust. However, only Argentine financial institutions and other entities authorized by the Argentine Securities Commission (Comisión Nacional de Valores, CNV) may serve as financial trustees. The trustee must comply with certain obligations imposed by the Trust Law, such as the obligation to reportat least once a year and to abstain from acquiring the trust assets. In addition, the Trust Law establishes a standard of conduct for the performance of the trustee, such that trustees must act with the care and prudence of a sound businessman and with the confidence with which the trustee has been entrusted. The trustee has a legal duty to manage the trust's assets in the best interests of the beneficiaries. Generally, trustees delegate certain managing functions to administer the trust on behalf of the beneficiaries according to the express terms and provisions of the trust agreement.

The trustee is entitled to receive certain fees for its services and to be reimbursed for the expenses related to the trust.

2.2.3. The beneficiaries

The trust agreement must identify the beneficiary, who may be an individual or an entity, and may or may not exist at the time the agreement is executed. If the beneficiary does not exist, information must be provided to identify the beneficiary in the future. Should no beneficiary accept the trust, all of them waive or not come to exist, and no substitute be found, then the beneficiary will be the settlor.

2.2.4. The assets

As mentioned above, any asset producing a regular flow of income can be securitized. There are no limitations on the type of assets that may be securitized, provided, however, that (1) rights of a personal nature or that require someone to perform in person (intuitae personae) may not be transferred and (2) the underlying contract prohibits its assignment.

2.2.5. Financial trusts

In general, securitization is carried out through financial trusts. The Trust Law ensures that the trustee may issue debt securities and/or certificates of participation backed with the trust assets. Such securities may be issued in different tranches which may grant different rights to the investors (beneficiaries). The debt securities may also be issued by third parties. In addition, the debt securities and certificates of participation may be offered to the public after obtaining the approval of the CNV.

Financial trusts are required to prepare financial statements on a quarterly basis which must (yes is mandatory) be audited by an independent public accountant and prepared in accordance with generally accepted Argentine accounting principles.

2.2.6. Public offering of trust securities

In order to publicly offer trust securities, an application to the CNV requesting authorization for a public offering of securities must be filed. Such filing is to include a draft of the prospectus (describing the assets, the settlor, the business, the securities, the trustee), a draft of the trust agreement and related documents (e.g. custody agreement, paying agency agreement, administration agreement, placement agreement), copies of the trustee's corporate authorization for the creation of the trust and the issue of securities.

After the Bonesi and Saturno cases, CNV General Resolution 555 was issued on 12 March 2009. This General Resolution increased the requirements for publicly offering securities. It strengthened the information requirements in order to obtain the authorization from the CNV to offer securities, it increased the liability of the trustee (as organizer or expert and responsible for the custody of the instruments and sale of the trust property), it required the appointment in advance of a substitute collection agency and imposed the obligation to specify a procedure for its substitution in the trust agreement, it regulated the obligation to render accounts regarding collections (the trustee must have a special computer system to control collections), and it imposes the obligation to supervise any delegated act and to render account of such act to any interested third party.

3. Tax Framework

3.1. General considerations

For many years the most attractive reason for the use of a financial trust as a vehicle for consumer loans, was the benefit arising under the income tax regime. The income tax regime applicable to financial trusts was first established under Decree 780/95, which regulates Trust Law 24,441, and then under Decree 254/99, which amended the Income Tax Law Regulatory Decree.

This original regulation provided that subject to the fulfilment of certain requirements, for purposes of determining such net income, the trustee was allowed to deduct all sums distributed or to be distributed as earnings of the trust among the holders of the securities. However, Decree 1207/2008 restricted this deduction only in the case of financial trusts related to infrastructure works for rendering public services.

Despite current regulation, the general use of financial trust structures in the securitization of consumer loans has increased over the past five years. The main reason for this increase is that such structure still works out as long as it maintains a high level of debt.

3.2. Taxation of the trust

3.2.1. Income tax

Financial trusts are subject to Argentine income tax on the net income derived from the trust's activities. Those who act as trustees under the Trust Law must pay, as administrators of another person's assets, 35% of any net income obtained, in general, as sole and final payment of the income tax accrued in connection with the trust assets.

Financial trusts are taxed similarly to companies. The deduction of interest payments is generally allowed for Argentine companies. Sec. 121.1 of the Income Tax Implementing Decree excludes financial trusts from thin capitalization rules that restrict the deduction of interest payments. As trusts are normally highly leveraged, the effective tax is considerably reduced.

3.2.2. Tax on debits and credits to bank accounts

In Argentina, there is a tax on debits and credits to bank accounts. This tax applies to all credits and debits on accounts at Argentine financial entities at a rate of 0.6% (34% of the tax paid for the credit in the bank account is a tax credit against income tax or tax on presumed minimum income).

However, the bank accounts of financial trustees that are used exclusively in connection with their respective trust activities are exempted if the trust meets the following requirements:

(1) the trust is a financial trust;

(2) the trust is created for the sole purpose of securitizing assets;

(3) such assets are homogeneous and consist of government or private securities or of credits derived from financing operations evidenced by public or private instruments, being their classification as such and value required to be verified by the supervisory agencies in accordance with regulations in force;

(4) the creation of the trust and the public offering of the relevant participation certificates or debt securities have complied with the regulations of the CNV;

(5) except as set forth in the Trust Implementing Decrees, the trust assets are not replaced by other assets upon settlement or cancellation thereof;

(6) the aggregate trust gross income consists of the income generated by the trust assets and the proceeds from the realization thereof; and

(7) as regards credit instruments, their term of duration for the trust relates to that of final settlement of the trust assets.

3.2.3. Value added tax

The Trust Law provides for a rule applicable to any assignment of credits to a trust (Sec. 84). When the assigned assets consist of credits, the transfers in favour of the trust will not be regarded as levied loans or financial placements. For this reason, they would be exempt from VAT.

3.3. Taxation of the securities

3.3.1. Income tax

Interest payment. Under the Trust Law, interest received by a foreign resident on debt securities issued by a financial trustee are exempt from any income tax withholding as long as the trust is set up with the purpose of securitizing assets and the securities are placed through a public offering. The purchase and sale of the securities is exempt of income tax for non-residents. These exemptions are not applicable to Argentine entities.

Income under certificate of participation. In general, distributions under certificates of participation are treated as dividends. Distributions of dividends are subject to equalization tax if such income was not subject to corporate income tax. Income distributions made by financial trusts will not be subject to equalization tax to the extent that their certificates of participation are placed through a public offering which has been authorized by the CNV.

3.3.2. Value added tax

Interest payments on securities, as well as financial transactions and obligations related to the issuance, subscription, placing, transfer, amortization and cancellation of securities, are exempt from VAT so long as the trust relating to such securities is set up with the purpose of the securitization of assets and placed by means of a public offering pursuant to Sec. 83(b) of the Trust Law.

* Marval O'Farrell & Mairal, City of Buenos Aires, Argentina.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions