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Pass-Through Entity


A legal business entity that passes all its income on to the owners or investors of the business. The income of this entity flows to its owners/ investors, and cannot be treated as its own income. Such an entity is treated as a partnership or trust for income tax purposes.

In Islamic finance, a special purpose vehicle (SPV) provides an effective tool for issuance of sukuk. Under an asset-backed sukuk structure (where sukuk have tangible assets as underlying, the SPE is typically created by the originator, which holds- ringfences- the assets to safeguard them from any actions that may be taken by creditors if the originator runs into financial difficulties. The SPV issues sukuk to raise funds needed for acquirement of underlying assets. The SPE acts as a trustee for sukuk-holders. Unlike conventional SPEs, an SPE in the context of sukuk, is not a pass-through entity and rather is an entity (a business) in itself.

A pass-through entity is also known as a flow-through entity or a fiscally-transparent entity or for short as PTE.



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