My client is a private equity fund that has debt funded a UK company (UKCo) through a Luxembourg holding company (LuxCo). LuxCo is funded using preferred equity certificates (PECs) interest will accrue under the PECs until the investment is disposed of. The fund is a Luxembourg SCSp the limited partners are a mixture of US taxable and tax exempt and UK taxable investors. I am concerned that the UK anti-hybrid rules may apply to this structure but I’m not sure where to start.
Answer
You are right to be concerned. A number of warning flags arise under this structure:
PECs may constitute a hybrid financial instrument because although classed as debt instruments for Luxembourg tax purposes can be structured to obtain equity...
If you or your firm subscribes to Taxjournal.com, please click the login box below:
If you do not subscribe but are a registered user, please enter your details in the following boxes:
My client is a private equity fund that has debt funded a UK company (UKCo) through a Luxembourg holding company (LuxCo). LuxCo is funded using preferred equity certificates (PECs) interest will accrue under the PECs until the investment is disposed of. The fund is a Luxembourg SCSp the limited partners are a mixture of US taxable and tax exempt and UK taxable investors. I am concerned that the UK anti-hybrid rules may apply to this structure but I’m not sure where to start.
Answer
You are right to be concerned. A number of warning flags arise under this structure:
PECs may constitute a hybrid financial instrument because although classed as debt instruments for Luxembourg tax purposes can be structured to obtain equity...
If you or your firm subscribes to Taxjournal.com, please click the login box below:
If you do not subscribe but are a registered user, please enter your details in the following boxes:
.jpg?sfvrsn=335a554c_0 "300 x 250 (MPU)")