9.1 Withholding Taxes. Will any part of payments on receivables by the obligors to the seller or the purchaser be subject to withholding taxes in the USA? Does the answer depend on the nature of the receivables, whether they bear interest, their term to maturity, or where the seller or the purchaser is located?
Payments of interest to the seller or the purchaser by debtors who are United States persons on interest-bearing debt obligations with maturities in excess of 183 days generally are subject to United States withholding tax if the seller or the purchaser is a non-resident of the United States. The statutory rate of United States withholding tax generally is 30%, but this rate is often reduced to 0% by an applicable income tax convention between the United States and the seller's or purchaser's country of residence. In addition, certain payments of interest are exempt from withholding tax under the "portfolio interest" exception to withholding but most receivables are not in the registered form necessary to meet this exception. Payments of interest by United States-resident debtors to the seller or the purchaser may also be subject to "backup withholding" if the seller or the purchaser does not provide the payer with the appropriate certification that it is exempt from backup withholding. Backup withholding currently is imposed at a rate of 28%. It is not an additional tax but rather an advance payment of tax which may later be credited or refunded. Payments of interest to the seller or the purchaser by debtors who are not United States persons are not generally subject to United States withholding tax unless such interest arises from a branch in the United States maintained by such debtor.
9.2 Seller Tax Accounting. Does the USA require that a specific accounting policy is adopted for tax purposes by the seller or purchaser in the context of a securitisation?
Most taxpayers are required to use the accrual method of accounting. In certain limited cases, some securitisation vehicles may elect to mark their assets to market.
9.3 Stamp Duty, etc. Does the USA impose stamp duty or other documentary taxes on sales of receivables?
There are no federal stamp duties or documentary taxes on sales of receivables, and these types of charges are unusual at the state level.
9.4 Value Added Taxes. Does the USA impose value added tax, sales tax or other similar taxes on sales of goods or services, on sales of receivables or on fees for collection agent services?
There are no federal value added taxes or sales taxes on sales of goods or services, on sales of receivables or on fees for collection agent services. Virtually all of the 50 states of the United States have some form of state sales tax on sales of goods or services. In general, no value added, sales or similar taxes will apply to sales of receivables or to fees for collection agent services.
9.5 Purchaser Liability. If the seller is required to pay value added tax, stamp duty or other taxes upon the sale of receivables (or on the sale of goods or services that give rise to the receivables) and the seller does not pay, then will the taxing authority be able to make claims for the unpaid tax against the purchaser or against the sold receivables or collections?
As discussed above, there are no federal stamp duties or documentary taxes on sales of receivables. The ability of state taxing authorities to collect any value added tax, stamp duty or other taxes, if imposed, may vary.
9.6 Doing Business. Assuming that the purchaser conducts no other business in the USA, would the purchaser's purchase of the receivables, its appointment of the seller as its servicer and collection agent, or its enforcement of the receivables against the obligors, make it liable to tax in the USA?
If a non-resident purchaser is considered to be carrying on a trade or business in the United States, it will be required to file a U.S. federal income tax return and, absent an applicable income tax convention between the United States and the country where the non-resident purchaser is resident, will be required to pay United States federal income tax on any income that is effectively connected with its carrying on of a trade or business in the United States (ECT). Typically, a purchaser resident in a country with which the United States has an income tax convention will only be subject to U.S. federal income tax on its ECT from a trade or business carried on through a permanent establishment in the United States.
Whether or not the purchaser is carrying on a business in the United States, or has a permanent establishment in the United States, is a question of fact to be considered on a case-by-case basis. Particular attention must be given to the appointment of a seller resident in the United States as servicer and collection agent for a non-resident purchaser, in order that such appointment does not cause the purchaser to be considered to be carrying on a trade or business through a permanent establishment in the United States (thus giving rise to ECT).
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.