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Two main principles were set out by the legislator at the time of the recent enactment of Law 130/1999 on securitization: the exclusive object of a securitization vehicle must be to enter into securitization transactions; and the receivables of each transaction must represent assets segregated from the vehicle's own assets and from those of other securitizations which may be entered into by the same vehicle.

The cash flows generated by a vehicle are, together with any collateral securities created for a specific transaction, exclusively allocated for the payment of the notes and the other costs of a specific transaction.

The Bank of Italy gave guidelines on March 29 2000 for the drafting of accounts by companies incorporated under Law 130/1999. The Bank of Italy's guidelines require that the accounting information for each securitization must be separated from information relating to transactions directly pertaining to the vehicle and must be included in the integrative note only. The profit and loss account of the vehicle is thus not influenced by potential ups and downs in the cash flows of the relevant portfolios of receivables.

On such a basis vehicles have not, to date, treated their portfolios as part of their assets nor have the portfolios been subject to corporate taxation at the vehicle's level.

The Tax Revenue Agency officially cleared on February 6 2003 the tax neutrality of Italian securitization vehicles with its Circular No 8/E (Circular No 8/E).

Circular No 8/E has officially confirmed this principle indicating that the economic results deriving from the management of the securitized assets do not form part of the assets of the vehicle as the credit risk deriving from their management pertains to the noteholders only.

The tax ruling should reassure all those involved in securitization transactions and hopefully limit the development of contractual provisions to counteract the possible taxation of portfolios at the level of securitization vehicles.

Vehicles will be taxed only and to the limited extent that at maturity there will be a residual amount that will remain available to the vehicles only, once all the creditors of the segregated assets receive payment in full.

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