How Robust Is Your Structured Finance Transaction?

Abstract

Structured finance transactions are increasingly under scrutiny by tax authorities. They are suspicious that the driving motivation behind such transactions is tax avoidance. This places all structured finance transactions in a spotlight of tax uncertainty and makes them a source of potential disclosures under Section 404 of the U.S. Sarbanes-Oxley Act of 2002 (SOX 404) and the Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48) (Accounting for Uncertainty in Income Taxes).

This paper sets out principles successfully implemented in South Africa to overcome and decrease risk exposure on structured finance transactions. The South African tax authority (South African Revenue Service or SARS) aggressively pursues and investigates structured finance transactions, causing turmoil in the financial services sector. The principles applied may also be applicable in other jurisdictions around the world.

Keywords: structured finance, tax uncertainty, tax disclosure, tax audit, FIN 48, SOX 404, SEC, tax, tax investigation, South Africa

JEL Classification: K10, K33, K34