Poland: Securitisation

Securitisations have been present on the Polish market since the early 2000s. Initially, there were only traditional securitisations, involving the transfer of both legal title to and economic benefits under the securitised assets from the originator to a special purpose entity (SPV). Synthetic securitisations appeared on the Polish market later: about five years ago.

The vast majority of securitisations in Poland related to financial assets and were carried out by banks and bank-owned leasing companies. Initially, the main objective of securitisations was funding. Less attention was paid to achieving capital relief. In recent securitisations of banking assets obtaining of the capital relief effect is of increasing importance to originating banks. That explains the growing popularity of synthetic transactions. For leasing companies, the main motive for securitisation transactions is still funding at an attractive cost. Hence, leasing companies usually carry out traditional securitisations, and synthetic ones only when the capital effect of the transaction is obtained indirectly by their parent bank.

Formally it is possible to structure a securitisation as purely domestic or a cross-border transaction. In practice, almost all transactions are cross-border. This is due to various reasons, including certain legal difficulties in structuring domestic transaction as well as preferences of investors who prefer to have an issuer located in more typically used jurisdictions.

Generally, the assets subject to securitisation are receivables, namely rights and claims under a contract. Under Polish law, in general, payment receivables and related non-payment receivables may be disposed, also as part of a securitisation transaction. Legal limitations on the transferability of receivables are very few and these are irrelevant to securitisation. Polish law also allows to limit the transferability of receivables under an agreement as additional contractual stipulation among the parties. In the typical categories of contracts that give rise to securitised receivables, such situations are unlikely to occur. Usually loan or lease receivables are freely transferable. Polish law does not provide for any prohibition on securitisation of receivables towards consumers, so that consumer loans and other types of contracts with consumers may be securitised.

In the majority of transactions carried out in Poland, the securitised assets were financial receivables, in particular receivables under bank loans (cash loans, car loans) and receivables from leasing agreements (usually these include periodic lease instalments but in some transactions also residual values).

A separate group of assets are commercial receivables. These are also securitised in Poland, although not that often as financial assets. Securitisations of commercial assets mostly relate to portfolios of a given capital group owned by subsidiaries in several countries, therefore transactions are usually multi-jurisdictional.

The receivables from mortgage loans are not securitised in Poland although legally it is not prohibited. The problem with the construction of mortgage receivables securitisation is that under Polish law the transfer of a receivable secured by a mortgage is effective only upon the entry of the buyer (new creditor) in the land and mortgage register kept for the underlying real estate. The entry is made by the court at the request of a party to the transaction. No deadline is specified for the registry court for making an entry; in practice it may be up to several months. As a result, there is a time gap between the conclusion of the receivables purchase agreement and the effective transfer of the receivables to the buyer, the length of which cannot be precisely defined. Moreover, it cannot be ruled out that the court will block the entry of the buyer of receivables in the land and mortgage register due to formal errors. All this means that it is not possible to eliminate the risk of the buyer not being entered in the land and mortgage register, and thus the risk of ineffective sale of receivables. The situation described above is the reason for the lack of securitisation of mortgage receivables on the Polish market.

There are categories of assets which still wait for their first securitisation. These are in particular receivables under credit cards or receivables of media providers.

Poland does not have its own regulation specifically addressed to securitisation. Fragmentary regulation can be found in various legal acts, including the Polish banking law, the act on investment funds and the Polish bankruptcy law.

Poland, as an EU member state, is subject to the Securitisation Regulation (Regulation 2017/2402 of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation). All transactions that meet the definition of securitisation under the Securitisation Regulation are subject to the Securitisation Regulation, including all traditional (true sale) and synthetic transactions.

It is not clear whether the sales of non-performing loans (NPL) on the Polish market are subject to the Securitisation Regulation. NPL are always being sold by Polish banks to a special type of investment fund – a securitisation fund, and no other entities. This is justified mainly, if not exclusively, in tax regulations. A sale of NPL to any other purchaser would not give a tax benefit to the selling bank. On the other hand, NPL transactions do not usually have all securitisation characteristics, in particular no tranching element is present in such transactions. These are simple debt sales with a complete shift of servicing beyond the originating bank, which indicates that they are not strictly securitisations in the meaning of the Securitisation Regulation. However, practice in this area has not yet developed.

According to the Securitisation Regulation, securitisation transactions are divided into traditional and synthetic securitisations.

Traditional securitisations, involving the transfer of legal title to and economic benefits under the assets from the originator to an SPV, are performed in a standard structure. The assets (receivables) are transferred from and originator to an SPV under a receivables purchase agreement (RPA). The RPA is always governed by Polish law. An SPV can be located either in Poland or off-shore (subject to limitations under art 4 of the Securitisation Regulation). The receivables transferred to the SPV are serviced by the originator on the basis of a service agreement also governed by Polish law. The involvement of a back-up servicer depends on the transaction. The SPV issues bonds or notes usually offered to a few selected institutional investors. Typically an SPV (including if located in Poland) issues notes under English law. The notes are usually admitted to trading. In many transactions subordinated financing is provided to the SPV, usually in the form of loans or bonds/notes. Subordinated financing is usually provided by the originator itself or another entity from its group. The subordination element may also take the form of a price deferral. This is obviously influenced also by whether the purpose of the transaction is to obtain a capital effect for the originator. If this is the case, the originator’s share of the subordinated financing may not exceed the level permitted by the Capital Requirements Directive (CRR). In addition to the originator (also acting as a servicer) and the SPV, the following entities typically participate in a transaction: entities performing agency functions (account bank, cash manager, cash administrator), trustee in the notes issuance under English law, security trustee or agent. Usually, a data trustee is also appointed due to limitations related to the protection of personal data.

In many traditional securitisations, collaterals are established for the benefit of investors (directly or indirectly: in favour of the SPV). In particular, in lease securitisations, there is a pledge over the leased objects established by the originator in favour of the SPV (the leased objects are not sold to the SPV and remain the property of the originator for the duration of the transaction). A pledge over the leased objects allows for their ownership to be taken over by the SPV in the event of an early termination of the transaction as a result of a breach by the originator (as seller or servicer) and the elimination of the originator (or its bankruptcy receiver) from the transaction.

Synthetic transactions were initially less frequent in Poland but their number systematically increases. Until now, most  synthetic transactions have had a guarantee structure. Credit risk related to the pool of receivables was transferred to the guarantor, which was a financial entity with appropriate creditworthiness. All these synthetic securitisations have had guarantees issued by EIF and/or EIB or IFC (a guarantor in such transactions must have high rating). A structure where

the transfer of risk is achieved by the use of guarantees is allowed under the Securitisation Regulation equally to the transfer of risk achieved by the use of credit derivatives.

Recently, synthetic transactions were also carried out in Poland, in which the transfer of risk was made using credit linked notes (CLN). In all these transactions CLN were issued by the originating bank, without involvement of an SPV.

As required under the Securitisation Regulation, Poland has appointed the Financial Supervision Commission (Komisja Nadzoru Finansowego – KNF) to act as a regulator for securitisations in Poland. KNF is also the general regulator for the Polish financial market.

There are no limitations under Polish law for certain entities on participating in securitisation transactions as originators. Any Polish entity that has assets suitable for securitisation may appear on the seller (originator) side. In particular, securitisation is available to banks (that is expressly stated in the Polish banking law), leasing companies, non-banking loan providers, telecommunications service providers, business enterprises. Participation in the transaction on the seller’s side is not connected with any permit, license or other regulatory approval.

There are certain formal requirements on the part of the buyer of the assets. They result from the Securitisation Regulation, which contains specific conditions that must be met by the SPV. Under the Securitisation Regulation, an SPV must be a corporation, trust or other entity, other than an originator or sponsor, established for the purpose of carrying out one or more securitisations, the activities of which are limited to those appropriate to accomplishing that objective, the structure of which is intended to isolate the obligations of the SPV from those of the originator. There are also certain requirements as to the location of the SPV unless it is located in a EU country. There are also certain requirements as to the SPV imposed by the Polish Banking Law. An SPV being the buyer in a banking assets securitisation should be entirely separate from the originating bank (in terms of lack of capital and organisational links with the bank). These conditions are met in all transactions and considered standard.

In NPL transactions the only possible buyer is a Polish securitisation fund. It is a specific typoe of closed-end investment fund which is allowed to invest in pools of receivables. Securitisation funds were introduced to Polish legal regime around 20 years ago. The idea was to establish a suitable form of securitisation vehicle for any type of securitisation transaction. In practice, securitisation funds are only used in the NPL sales, and only because of specific tax benefits which are not possible to obtain if dealing with other entity. Other than that, securitisation funds are found too complicated and expensive to be a viable alternative to special purpose limited companies.

As the Securitisation Regulation is in force in Poland, the concept of STS (simple, transparent and standardised securitisation) is recognised and has been implemented in few transactions. A securitisation transaction originated in Poland can be assigned with the STS status if it meets the requirements set out in the Securitisation Regulation. Polish law did not add any additional requirements or conditions in that respect.

The distinction between public and private securitisation is based on the Prospectus Regulation (Regulation 2017/1129 of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC). The Prospectus Regulation is in force in Poland as an EU country. In practice, in all Polish securitisations, notes issued by an SPV were offered to several agreed institutional investors, so that these were private placements. Their subsequent admission to trading on the market was determined by the arrangements in a given transaction.

There are no authorisation or registration requirements under Polish law relating to securitisations. Transactions are not registered. Participating in a securitisation does not require any authorisation or licence from Polish authorities. In particular, no license or authorisation is required for a servicer or a back-up servicer. Certain elements of a transaction may be subject to registration. In particular this relates to pledges on SPV’s assets and pledges over leased objects in lease assets securitisations. Pledges under Polish law must be registered in the court registry as a condition of their perfection.

There are also requirements to provide information to the Polish securitisation regulator – KNF resulting from the Securitisation Regulation and domestic laws which follow the Securitisation Regulation. The requirements include notification on completion of the transaction and periodic reporting. Their scope is defined in the Securitisation Regulation.

The Securitisation Regulation imposes certain reporting requirements on parties participating in a securitisation. These are specified in art. 7 of the Securitisation Regulation. Firstly, parties to a transaction should appoint an entity to perform the disclosure requirements. Such a designated entity could be any of: an originator, sponsor or an SPV. Disclosure requirements under the Securitisation Regulations are specific for public transactions for which a prospectus has been prepared. Generally, there are three groups of disclosure requirements under the Securitisation Regulation: (i) those that must be fulfilled before pricing (in particular, the delivery of all underlying documents “essential for the understanding of the transaction” (including prospectus), (ii) periodic reporting requirements that consist of providing data on the loan level and reports for investors and (iii) ad hoc reporting that includes inside information and significant events notifications. All reporting should be directed to investors and the KNF. All periodic reports should be prepared using the ESMA reporting templates in an appropriate format. Modified disclosure rules relate to STS transactions.

The main legal act dealing with the disclosure of the issuers of securities being traded on the regulated market in Poland is the Act on Public Offering of 2005 and the Regulation of the Minister of Finance of 2018 on current and periodic information. In relation to debt securities admitted to public trading the disclosure rules consist of publishing by the issuer of either quarterly reports and yearly reports, or interim reports and yearly reports, containing audited financial statements for the relevant period; these reports are submitted to the operator of the market, to the KNF and to the chosen press agency. Further disclosure requirements can be introduced by the operator of the regulated market.

The issuer’s non-compliance with the reporting requirements can result in the exclusion of their securities from trading, and/or a fine of up to PLN5 million or 5% of its total annual revenue.

The disclosure rules applicable to issuers of securities admitted to trading on an alternative trading system are imposed by the organiser of the market. Alternative trading system operators usually envisage less complex reporting requirements and lesser fines imposed on the issuers for their non-compliance with the regulations of the alternative trading facility.

Risk retention provisions contained in art 6 of the Securitisation Regulation apply in Poland. There are a few methods of holding the required material net economic interest of 5% of the total exposures under the Securitisation Regulation, two of which are commonly used by Polish originators. The most popular method is the retention by the originator (or the sponsor) of the first loss tranche. This has the form of providing a subordinated debt to the SPV, with an original nominal value of not less than 5% of the total funding provided to the SPV. This method is not possible in each case. For lease companies exposure in interest-bearing debt instruments might be economically ineffective, as due to the specific tax regulations that can affect their ability to recover the VAT payable on the initial acquisitions of the lease objects. Also, this method is not of use for banks seeking the capital relief effect on the transaction, as in such case the participation in subordinated tranches is limited by law. As an alternative approach retention of randomly selected exposures method is used, which means that the originator holds during the lifetime of the transaction the randomly selected assets equal to the assets being subject to securitisation with an aggregate nominal value of at least 5% of the nominal value of all securitised receivables.

The fulfilment of the risk retention rules is periodically reported by the originator in investor reports.

The Securitisation Regulation requires that each Member State shall lay down rules establishing appropriate administrative sanctions for being in breach of specific rules of the Securitisation Regulation, including a situation where an originator, sponsor or original lender negligently or intentionally fails to meet the requirements of risk retention provided for in arte 6 of the Securitisation Regulation. Further to the above requirement, the KNF was assigned with the right to impose certain administrative penalties on participants of a securitisation transaction who are in breach . of obligations related to risk retention.

In accordance with the Securitisation Regulation, an institutional investor is required to carry out a due-diligence assessment. The detailed regulation of such due diligence assessment is set out in art 5 of the Securitisation Regulation. With regard to a securitisation notified as STS investors may in certain matters rely on the STS notification made by the originator.

As required by the Securitisation Regulation, Poland has established the rules for administrative sanctions for being in breach of obligations under the Securitisation Regulation. These include situations where an originator or sponsor negligently or intentionally fails to meet the disclosure requirements, risk retention rules, rules for credit granting. The KNF was assigned with the right to impose administrative penalties on participants of a securitisation transaction for being in breach of these regulations.

Sanctions which KNF is authorised to impose on securitisation transaction participants are various: from the requirement to cease the conduct through a temporary ban preventing any member of the originator’s, sponsor’s or SPV’s management body from exercising management functions in such undertakings to pecuniary sanctions. So far there is no established practice of KNF regarding their sanction policy.

Other sanctions were imposed under the Polish Act on Public Offerings. The penalties relate to breaching the rules of public trading and fail to meet disclosure requirements. All these sanctions can be divided into criminal sanctions which can imposed by a court and administrative sanctions which can be imposed by KNF.

The penalties for a violation of disclosure requirements set out in the Regulation 596/2014 of 16 April 2014 on market abuse (MAR) have been implemented by the Polish Act of 2005 on Trading in Financial Instruments. The maximum penalties range from PLN2 million for the unlawful disclosure of inside information by a natural person to more than PLN10 million or up to 2% of the total annual turnover for an infringement of public disclosure rules by the issuers.

There is no specific type of entity intended to act as a special purpose entity in securitisations under Polish law. Polish securitisation funds, referred to above, are the only exception, but their importance is low as they are used only in NPL sales transactions and only for tax reasons. Polish law does not recognise trusts, namely they do not exist under Polish law.

It is possible to use either a Polish or an off-shore entity as a securitisation vehicle for a Polish securitisation.

If it is decided to use an entity located in Poland than it is usually a limited liability company (spółka z ograniczoną odpowiedzialnością). Its activities are limited under the articles of association to matters relating to the securitisation transaction in which it participates. A Polish SPV is always established as an orphan company owned by a non-profit special entity, usually a Dutch stitching registered and operating in the Netherlands. Although the establishment of a Polish limited liability company is relatively straightforward, it is a common practice that ready-made, dormant companies are purchased from corporate service providers.

Due to certain legal difficulties in the structuring of securitisation transactions with the participation of Polish SPV, in the recent transactions SPVs were located off-shore, mainly in Ireland. Many transactions with the SPV in the form of an Irish DAC have already been carried out so that such structures are well tested.

Irrespective of its location, an SPV has to meet the requirements of the Securitisation Regulation and, if a Polish bank is the originator, also Polish banking law.

Polish SPVs are subject to the Securitisation Regulation, equally to off-shore SPVs, so these have to meet the same conditions in order to be eligible structures.

SPVs are made bankruptcy remote in several ways. Firstly, irrespective of its location, each SPV must comply with requirements of the Securitisation Regulation. It should be a corporation, trust or other entity, other than an originator or sponsor, established for the purpose of carrying out one or more securitisations. Its activities should be limited to those appropriate to accomplishing the securitisation for which it has been established and its structure should allow isolating the obligations of the SPV from those of the originator. An SPV should also comply with the rules concerning its location specified in the Securitisation Regulation.

The requirement for the SPV to be isolated from the originator is also imposed by the Polish banking law.

As it was said before, Polish SPVs are created as orphan companies, with limited scope of activities, no personnel, no legal relations other than those linked with the underlying securitisation transaction. Management of a Polish SPV is always assigned to a professional corporate servicer. As a standard, legal documentation of Polish securitisations contain usual limited recourse and non-petition clauses.

Credit support in Polish securitisations is usually provided in form of either subordinated tranches (subordinated notes/bonds or subordinated loans) or a deferred purchase price where a portion of the purchase price is payable as the last position in the payment waterfall.

Cash reserve deposits are often used to protect against various risks, particularly liquidity or commingling risk.

A “true sale” effect is possible of being achieved under Polish law. Generally, assignment of receivables under Polish law (regulated under the Polish Civil Code) can be effected under various legal titles, one of which is the sale of receivables. It is crucial that each transfer of receivables under a securitisation transaction is structured as sale and not as other type of legal transaction, in particular not as lending secured on the assets to eliminate any re-characterization risk. To achieve this effect, a receivables purchase agreement should contain all elements which are necessary, in accordance with the Civil Code, to say that the disposal of receivables was their sale. There are few such elements, in particular the clear transfer of legal title, clear agreement on the price, transfer of legal risk on the SPV. All rights of repurchase or withdrawal from the transaction should be considered. These do not automatically make the sale not being a “true” sale, but should not lead to the conclusion that the transfer may be reversed.

Pursuant to the Civil Code, no notice of assignment to debtors is required to ensure the validity and the effectiveness of assignment of receivables. However, there is a risk that a debtor, until it has been notified of the sale and assignment of the receivable, (i) may effect payment with discharging effect to the original creditor or (ii) enter into any other transaction with respect to the receivable with the original creditor and (iii) set-off its claims against the original creditor which were existing before the notification was made with the purchased receivable. So, the notification is not a must, but investors should be aware of the risks.

Polish law provides for certain claw-back rules, hardening periods etc. A claw-back period is always counted back in time from the date of filing the petition for bankruptcy or certain other insolvency (restructuring) proceedings. Specific actions performed by a bankrupt entity before the lapse of a relevant claw-back period can be declared ineffective (or are automatically declared ineffective). In particular, any action under which a bankrupt entity has disposed of its assets within the one-year claw-back period is automatically ineffective towards the bankruptcy estate if the disposal was performed either gratuitously or for a consideration significantly lower than the market value of the disposed assets. On the same basis any creditor may challenge the sale evidencing that it was made to the detriment of all creditors of the originator.

Generally, the risk of all these actions is eliminated or at least mitigated by the fact that the receivables are sold at par or at discounted price which cannot be recognised as being significantly lower than the market value of the disposed receivables.

The legal aspects of data protection are principally regulated by the GDPR and the Polish legal acts issued on its basis. Disclosing or transferring personal data that have been collected from the debtors under securitised receivables is subject to dedicated requirements.

The main question relating to data protection in each securitisation is whether the debtors should be notified that the originator will continue to process the personal data for a purpose other than that for which the  data were collected (i.e. to service the receivables on behalf of the SPV) and that the SPV became the data administrator.

So far, the approach to notifications differs depending on the transaction. In most transactions, debtors were not notified on data protection matters after the completion of the transaction. Such notifications were envisaged only at the time and in case the notifications of the assignment are send. Recently, it seems that the position of the need for immediate notification is gaining an advantage.

In either case, a data trustee structure is implemented to ensure that the underlying customers data is not disclosed to the SPV until a servicer default occurred and the replacing servicer was introduced to the transaction.

The other area of concern is banking secrecy, but this is sufficiently resolved by Polish law, due to a clear exemption under the Banking law, allowing the bank to disclose protected information to the extent necessary for conducting the securitization.

The EU Rating Agencies Regulation applies to Poland. The issuers and the rating agencies that take part in the securitisation are subject to the additional requirements that apply to the process of rating granting to the issuer or issued securities. Any issuer is obliged to obtain at least two different ratings from independent rating agencies. Issuers are also advised to consider appointing at least one credit rating agency with no more than 10% of the total market share. Ratings are subject to public disclosure.

Tax aspects are very important in structuring securitisation transactions by Polish originators. There are various tax implications which must be analysed including those relating to Value Added Tax, Tax on Civil Law Transactions, as well as Corporate Income Tax and withholding tax.

Corporate Income Tax (CIT) considerations

From the perspective of the Polish originator (seller of the receivables), CIT implications may differ depending on various factors, including in particular the legal status of the originator (e.g. a bank, a leasing company), the type of the receivables being securitised (e.g. loans, lease instalments, trading receivables), as well as the type of the special purpose entity (SPE) purchasing the receivables.

In particular, securitisation of credit receivables should be neutral for the originator assuming that the securitisation concerns performing loans and the price is not lower than the amount of the receivables transferred to the SPE. This is because, any loss incurred by a bank on the sale of the credit receivables will not be tax deductible unless it results from a non-performing loans (NPL) that are sold to the SPE being a Polish securitisation fund (and not a standard SPV). In the latter case, the bank would be able to deduct the loss incurred subject to certain conditions.

In case of lease receivables’ securitisation, purchase price paid to a leasing company does not constitute taxable revenue at the moment of the sale of the receivables (assuming the lease agreements are continued by the originator). Instead, the originator shows as taxable revenue lease instalments invoiced to lessees (in the entire part – in case of the operating lease, or in the interest part in case of the finance lease) when these instalments are due and payable. However, the leasing company is entitled to include in its tax costs any discount calculated on the purchase price for the receivables or any commission paid to the SPE (issuer) for the participation in the securitisation transaction.

Securitisation of trade receivables should also be CIT-neutral for the originator assuming that those receivables have been shown as taxable revenue before (which is standard in case of trade receivables). In such a case, any loss on the sale of the receivables should also be deductible for the originator.

From the SPE’s perspective, CIT implications depend in particular on whether the SPE is located in Poland or abroad and whether the Polish SPE has a form of a standard company (SPV) or a securitisation fund.

For a Polish SPV, collections received under the acquired receivables will be treated as taxable revenue. However, it will show tax deductible cost resulting from the purchase price paid to the originator, the financing costs and other expenses related to the transaction. Any respective income of the SPV would be subject to 19% CIT in Poland. If the SPE purchasing the receivables has a form of a Polish securitisation fund, it should benefit from the tax exemption on any income derived from the securitised receivables.

A foreign SPE purchasing the receivables from a Polish originator will not be subject to CIT in Poland, unless it has a permanent establishment in Poland (which would not be typical for a standard securitisation transaction). Nevertheless, in such a case the analysis is always required as to the withholding tax (WHT) treatment of collections transferred to the SPE with respect to the securitised receivables. According to the Polish CIT Act, certain categories of payments (like e.g. interest, lease payments, royalties, fees for intangible services) are subject to WHT in Poland unless a specific exemptions apply under domestic law or relevant double tax treaties. Therefore, when structuring a securitisation transaction, a special attention should be paid to the WHT treatment of collections transferred to a foreign SPE to check if it will be subject to the exemption. This needs to be done under the domestic law, applicable double tax treaties, as well as the Multilateral Instrument to Modify Bilateral Tax Treaties (MLI), to which Poland is a party.

In a number of tax rulings issued for securitisation transactions involving foreign SPEs (acting as receivables purchasers and note issuers) the tax authorities have been presenting the approach that collections received from the securitised receivables should be treated as business profit no matter if they origin from loans, lease contracts or trading activities. Based on such approach, collections transferred to foreign SPEs should not be subject to WHT in Poland and in consequence the servicer (tax collector) should not be obliged to collect any tax on the funds transferred to a foreign SPE. However, these conclusions need verification in case of each particular securitisation transaction. Also, it is advisable to confirm the tax treatment of collections through an individual ruling issued by tax authorities.

WHT aspects will also need to be taken into account in case of a Polish SPE participating in the securitisation. Although collections payable to the SPE would not be subject to WHT (since, as already mentioned, the SPE would pay Polish CIT on its own), WHT may be imposed on interest paid by the SPE to foreign lenders for providing financing to the SPE under notes or loans. In case the lender is a foreign bank or a supranational entity having tax immunity, no WHT should apply in Poland (to be verified and confirmed on a case-by-case basis).

The WHT legislation obliges tax collectors (payers) to verify with due care the applicability of the WHT exemption (or the rate lower than the domestic rate which amounts to 20% for interest and royalties). Such verification should include, in particular, confirmation that the payment recipient is a beneficial owner of the payment and conducts actual economic activity in connection with which the payment is derived.

In general, under the current legislation, a “relieve at source” approach apply in WHT regulations, which means that a tax collector may apply the exemption (or a lower tax rate) already when the funds are transferred assuming that it makes sure that the exemption actually applies in a given case, as well as upon the condition that the tax collector has a valid tax certificate of the payment recipient. However, the CIT Act provides also for some specific regulations introducing a “pay and refund” mechanism in case where interest, royalties or dividend payments to the same related party exceed in total the amount of PLN2 million in a given tax year. The law provides that in such a case, the tax collector will, as a rule, be obliged to withhold and transfer to the tax office the tax on such payments at the domestic WHT rate (20% or 19% depending on the title for the payment), notwithstanding lower rates or exemptions provided by tax treaties or other specific provisions. This tax will be refundable on the request of the tax collector or the payments’ recipient after the tax office verifies that the relevant conditions required for the application of the withholding tax exemption or a lower rate are met. Also, there are some possibilities to avoid withholding the tax through filing a written statement confirming that all condition for the application of the WHT exemption or a lower rate are met.

Value Added Tax (VAT) considerations

From the Polish VAT perspective, the treatment of the securitisation transaction should be the same irrespective of the legal status of the originator and the type of the receivables being securitised. Assuming the securitisation concerns performing receivables such transaction is treated as a  service rendered by the SPV for the benefit of the originator. It is a VAT-exempt service concerning debts. The service in questions is recognised for Polish VAT either by the SPV, if is a Polish entity, or by the originator acting as importer of the service rendered by a foreign SPV.

Typically, the originator acts also as servicer of the receivables transferred to the SPV. The VAT treatment of such servicing depends on the scope of these services. Usually, it is subject to 23% VAT in Poland. However, if the SPV is seated outside Poland, servicing of the receivables will not be subject to Polish VAT since the place of supply of this service is at the seat of the services recipient (i.e. the SPV). On the other hand, if the securitisation SPV is seated in Poland, the originator will have to settle Polish VAT on it, most likely at the 23% Polish VAT rate.

Tax on Civil Law Transactions (TCLT)

Sale of property rights (such as receivables) is, as a rule, subject to 1% TCLT calculated on their market value and payable by the purchaser. However, the general rule of the TCLT legislation is that in case a given transaction is subject to VAT (no matter if the VAT is actually payable or not), no TCLT applies. Therefore, since the sale of receivables within securitisation transaction should be treated, from the VAT perspective, as a service rendered by the SPV, no TCLT should apply in this case.

Individual tax rulings

It is a common practice in Poland that the most crucial tax implications of a particular securitisation transaction are confirmed through obtaining individual tax rulings before the transaction is done. This is due to the fact that securitisation transactions are quite complex and their key tax implications are not addressed directly in the law. Obtaining a tax ruling in Poland takes 3 months and it is subject to very nominal fee of ca. 10 EUR per each question asked in the ruling request.

The Mandatory Rules for Disclosing Tax Arrangements

On 1 January 2019, specific legislation on Mandatory Rules for Disclosing Tax Arrangements (MDR) to the Head of the National Tax Administration was implemented to the Polish law. As regards reporting cross-border arrangements, the MDR regulations implement Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (so-called DAC6). However, reporting obligations envisaged by Polish MDRs are much broader as they require disclosure not only cross-border but also domestic tax arrangements.

Due to the above, each securitisation transaction must be analysed from the perspective of reporting obligations under the MDRs. Such analysis must be performed from the perspective of so-called “hallmarks” provided in the law (including generic hallmarks, specific hallmarks and other specific hallmarks). It must also be checked if the transaction meats a main benefit test, i.e. if deriving the tax advantage is main or one of the main reasons for entering into the transaction.

The obligation to report a given transaction under the MDRs does not necessarily mean that it is a tax driven transaction to which Polish General Anti-Abuse Regulations apply (the GAAR apply if the tax advantage is the main, or one of the main, purpose of the transaction and the structure is artificial). This is because, the hallmarks provided by the MDRs are sometimes quite general and completely independent of any potential tax advantage derived by a taxpayer. This is why the securitisation transactions must also be analysed from the MDR reporting perspective even though, in a typical case, they are not aimed at obtaining unjustified tax advantages.

There are no legal obstacles to structure a securitisation as a cross-border transaction. In fact, most recently completed transactions were cross-border. It should only be taken into consideration that certain elements of the transaction must be governed by Polish law. This in particular relates to the transfer of receivables, which will always be assessed in accordance with the Polish civil law. Similarly, certain types of security interest on assets located in Poland must be established under Polish law.

Poland is subject to the EU Benchmark Regulation. WIBOR along with LIBOR, EURIBOR, EONIA and STIBOR on the European Commission has been put on the list of critical benchmarks used in financial markets. The administrator of Polish interest rate benchmarks including the critical benchmark WIBOR is GPW Benchmark which is has been by the KNF. Poland is in the process of the transition of WIBOR into a risk free index, although the process itself is still pending.

So far the market adopted the standard provisions and clauses which try to deal with the process. These are used in the legal documentation.

As all EU regulations apply to Poland, the regulatory framework is unified with the rest of EU countries. Also, the Polish legal regime generally allows for structuring of securitisations. Anyway, there are areas for improvement. One of these relates to the transfer of mortgage loans. It is difficult to say whether it is possible to introduce to the Polish legislation an exemption from the general rule under which a transfer of mortgage receivables is conditional upon the registration of the purchaser in the land and mortgage register. Without such exemption RMBS transactions will never be feasible in Poland.

The main impact of COVID-19 was caused by payment holidays introduced by all Polish banks and lease companies. That required amendments to pending transactions and suspended or delayed the new transactions. That was very visible in 2020 in which very few transactions were completed. It seems that the market is recovering in 2021.

No filings or other formalities are necessary to effect a true sale of receivables under Polish law. In order to be recognised a sale and no other type of legal transaction (in particular a secured lending), a receivables sale agreement must contain few elements which under the Civil Code constitute essential features for each sale transaction. These are: sufficient description of subject receivable, a definite transfer of that receivable and agreed price to be paid in exchange. Usually, a receivables sale agreement is concluded in simple written form (with wet ink or equivalent electronic signatures). Sometimes the date of the agreement is certified by a notary, although it is not a must.