Luxembourg Holding Vehicles ' A Hidden Gem Under Threat?

• Published date: 03 April 2024
• Subject Matter: Finance and Banking, Tax, Financial Services, Tax Authorities, Fund Finance
• Law Firm: Loyens & Loeff
• Author: Ms Anne-Marie Nicolas and Kévin Emeraux

Luxembourg is not only a well-known fund hub but it is also a very attractive jurisdiction for holding or financing special purpose vehicles (SPVs), which attracts a lot of business every year. Benefiting in the past from the innovative tax and legal regulatory landscape of Luxembourg, this successful product is facing an increasing number of threats that jeopardize its future competitiveness in the international markets.

Luxembourg is not only a well-known fund hub but it is also a very attractive jurisdiction for holding or financing unregulated vehicle, so-called special purpose vehicles - SPVs. SPVs are used in PE, real estate, LBO, debt issuance or listings and these thousands of Luxembourg vehicles are also generating work for thousands of private sector employees in Luxembourg. We sometimes forget that our very finance driven economy in Luxembourg is not only based on regulated funds or banks but also materially on the use of Luxembourg based in SPVs in all types of company structures. While the use of these SPVs used to be very much tax driven, it is nowadays as much or even more so based on other attractive features of the Luxembourg legislation such as the ability to integrate certain hybrid features such as compartments as well as our financial collateral law of 2005 which has since attracted a great number of LBOs and other types of financings to Luxembourg. We are a small jurisdiction that has traditionally been very competitive in the finance market thanks to a smart and quick legislator capable of putting in place products quickly to adapt to an ever changing market and to new competition as well as an approachable regulator. Lately it however is clear that many of our successful products are under threat and that we might slowly lose our much-needed competitiveness.

• Irish SPVs, UK QHAC and the harmonization of tax regimes

Ireland has always been a great competitor Luxemburg, mostly on capital markets and attracting corporate structures via the setting up of SPVs. We see lately that more and more Luxembourg structures are moving to Ireland because of pricing (set up and maintenance) and favourable implementation of certain EU tax directives. The Luxembourg SPV service providers have become so pricey that corporates find it more attractive to move their financing structures to Ireland, where management fees, auditor and service provider costs as well as taxes are generally lower.

The UK is now also being considered a real alternative when...