LUXEMBOURG Law and Practice Contributed by: Ana Nicoleta Andreiana, Christophe Boyer, Noémi Gémesi and Tom Hamen, Loyens & Loeff
3.3 Spin-Off Followed by a Business Combination
Luxembourg plays an important role in hosting and financing spin-off structures, including those emerg- ing from public research institutions with interest in a
Luxembourg law permits spin-offs to be followed by a business combination, including mergers or acquisi- tions, provided that the relevant corporate and pro- cedural requirements are met. These transactions are governed by the Luxembourg law of 10 August 1915 on commercial companies, as amended (“Company Law”) and, where applicable, the EU Mobility Direc- tive (Directive (EU) 2019/2121), which has streamlined cross-border corporate reorganisations. While spin-offs are not common in the energy and infrastructure sector in Luxembourg (given the juris- diction’s role as a fund and holding platform rather than an operational hub) the legal framework allows for such structuring. This is particularly relevant in the context of platform reorganisations, fund structuring, or cross-border investment strategies. From a corporate law perspective, key requirements for a business combination involving a demerger or a merger include the following. • Preparation and, following a one-month waiting period, approval of a demerger or merger plan by the shareholders of the involved entities. • Compliance with creditor and, if applicable, minor- ity shareholder protections, including potential exit rights. • Notarial certification for certain transactions, espe- cially those with cross-border elements. 3.4 Timing and Tax Authority Ruling The timing of a spin-off in Luxembourg depends on the complexity of the transaction and whether it involves domestic or cross-border elements. For a straightforward domestic spin-off, the process typi- cally takes one to three months (including preparation of documents, required publications and a one-month waiting period between publication and final spin-off approval). There is no requirement of a tax ruling from the Lux- embourg tax authorities for a spin-off, and no ruling is filed in the vast majority of cases. An advance rul- ing request can, however, be handy depending on the factual situation at hand, notably with a view to obtain
flexible holding jurisdiction. 3.2 Tax Consequences
A spin-off is generally a taxable event but can be structured as a tax neutral transaction in Luxembourg, at both the corporate (ie, split company) and share- holders’ level. At the corporate level, depending on the assets of the split company, the tax neutrality can be achieved in two ways. If the split company is a holding company, the spin-off should be tax neutral in Luxembourg pro- vided the requirements for the participation exemption to apply are met with respect to the participations held by the split company. Alternatively, the split company can achieve a tax neutral spin-off, provided the follow- ing requirements are met. • The spin-off must involve Luxembourg resident companies or companies resident in an EU mem- ber state or companies resident in an EEA country (other than EU) that are fully taxable at a rate equiv- alent to the Luxembourg corporate income tax. • The assets transferred must constitute a business or an autonomous part of a business. The same requirement applies to the assets retained in the split company. • The transferred assets must be taken over by the beneficiary company at the tax acquisition value they had in the split company (ie, no step-up in value of the transferred assets). • The spin-off takes the form of a share-for-share exchange. At shareholders’ level, the spin-off can be tax neutral in Luxembourg provided the following requirements are met. • The shareholder must receive (at least two) shares from the beneficiary company in exchange for shares from the split company. • A cash payment to a shareholder (instead of shares in the beneficiary company), if any, should not exceed 10% of the nominal value (or par value) of the shares in the beneficiary company received.
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