On July 14 2011 the Luxembourg lower administrative court rendered a decision regarding the qualification of income derived from the sale of preferential subscription rights by a Luxembourg company.
In the case at issue, the rights were issued for no consideration to the company's shareholders, entitling them to subscribe to additional shares if new shares were issued. One of the shareholders, a fully taxable Luxembourg resident company, sold the preferential subscription rights without selling shares. Contrary to the tax authorities' view, it considered that the gains realised on the sale were exempt under the participation exemption regime.
The court analysed the legal aspects of the rights and concluded that they merely conferred on shareholders a right to a potential additional participation in the company, and were granted in order to protect the shareholder from a dilution. The court decided that in the absence of rights in the share capital, the preferential subscription rights did not qualify as 'participations' for the purpose of the participation exemption regime. Consequently, it confirmed the taxable nature of the gain deriving from the sale of the preferential subscription rights.
For further information on this topic please contact Alain Goebel at Arendt & Medernach by telephone (+352 40 787 81), fax (+352 40 780 4) or email ([email protected]).