CLO Taxation

Growing CLO Market Demands
Specialized Tax Guidance
CLO Taxation
The Collateralized Loan Obligation (CLO) market continues to show steady and
significant growth, with expected CLO issuances in 2015 to eclipse the prior high in
2006. With new collateral managers entering the market, first-time CLO managers
account for approximately 5% of total CLO issuances. Mid-size managers now make
up 28% of the market (up from 18% in 2013). The overall trend indicates significant
growth in both new collateral managers entering this asset class and CLO issuances,
and both will require specialized tax guidance and reporting.
Tax & Technology
KPMG’s Securitization Tax Group is a specialty practice
within KPMG’s Advisory Services. We provide a suite of tax
services for CLO transactions including broadly syndicated
CLOs, middle market CLOs, and commercial real estate
(CRE) CLO structures. The team consists of dedicated
certified public accountants and software engineers in
Washington, D.C., servicing more than 100 CLO issuers
and 30 CLO collateral managers. As a recognized leader
in the marketplace, we have excellent and long-standing
relationships with all parties to CLO issuances from
asset managers to underwriters, trustees and investors.
Our strength lies in understanding manager’s needs,
building strong lasting relationships, helping managers
understand debt and equity investor taxation consequences,
and educating our clients on the inner workings of a CLO
from a tax perspective.
At KPMG, our tax, securitization, and IT professionals have
teamed to develop proprietary software to systematically
compute a CLO’s PFIC and subpart F income. The application
is a Windows forms application, written in C#, and operating
under the .NET framework with all data stored to an SQL server
database. Our technology integrates the asset-level trade and
cash activity, our income and expense amortization engine,
and the reporting platforms for Passive Foreign Investment
Companies (“PFIC”) and Controlled Foreign Corporations
(“CFC”). Our platform also incorporates excellent work paper
such as: year-end cash reconciliations, collateral balances
reconciliations, collateral basis roll-forward, and market
discount and premium amortization and roll-forward.
Our group maintains focus on emerging issues affecting
CLO tax-reporting, working directly with our Washington
National Tax, trustees and foreign agents so you can
concentrate on managing your portfolio.
CLO Tax Work Flow
Trustee provides the underlying
transactions and cash flows for the tax
reporting period.
CLO Trustee
KPMG generates
work papers and
deliverables.
Transaction
Data
Review the data and resolve
issues with the trustee and
manager.
KPMG Team
Import and process the input
data with the CLO tax software
and reviews the output data.
Transaction
Data
CLO Tax
Application
PFIC/5471
Transactions
Collateral &
Notes
Discount
Amortization
Loan Amortization
Schedules
KPMG identifies and addresses
tax issues and resolves any data
inconsistencies.
Tax Basics
Amounts
U.S. Tax Reporting Offerings
• Prepare a PFIC annual information statement to report
ordinary earnings and net capital gain.
• Guidance on IRS Form 926 for U.S. equity investors
contributing to the foreign corporation (the issuer).
• Prepare an issuer-level IRS Form 5471 for U.S. equity
investors that includes the foreign corporation’s tax balance
sheet, income statement, and subpart F income.
• Identifying potential tax issues impacting CLO’s (e.g, accrual of
income, write offs, loan modifications and discount or premium
amortization).
• CLO equity investor tax guidance.
• Provide estimated taxable income.
• Guidance on IRS Form 8621 for U.S. equity investors who
wish to make a Qualifying Electing Fund (QEF) election with
respect to their investment in the issuer.
Contact us
For more information about how KPMG can help you address
the tax-reporting issues related to CLOs, please contact:
David J. Pang
Partner
T: 703-286-8293
E: [email protected]
Cindy Gu
Manager
T: 703-286-6761
E: [email protected]
www.kpmg.com/us/securitizationtax
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