On February 16 2012 the Administrative Court of Appeal overturned three decisions(1) of the Lower Administrative Court regarding the qualification of income derived from the sale of preferential subscription rights. Preferential subscription rights confer on shareholders a preferential right to subscribe newly issued shares and are intended to protect them from a dilution of their shareholder rights (in particular, their entitlement to existing reserves).
In the case at hand, the lower administrative court held that a gain realised on the disposal of preferential subscription rights does not qualify as 'income from a participation' that may be exempt under the participation exemption. According to this restrictive interpretation, the participation exemption may apply only to a gain realised on a direct participation in the share capital of a company. As preferential subscription rights constitute merely an entitlement to subscribe to additional shares, they may not be qualified prima facie as 'participations in the share capital'.
However, the Administrative Court of Appeal ruled that preferential subscription rights cannot be deemed autonomous securities, but must be analysed as rights attached to the existing participation, since each shareholder benefits from these rights in proportion to its participation in the share capital of a company. As a result, a sale of preferential subscription rights constitutes a partial disposal of a participation and a gain realised thereon may be exempt under the participation exemption.
For further information on this topic please contact Thierry Lesage or Alain Goebel at Arendt & Medernach by telephone (+352 40 787 81), fax (+352 40 780 4) or email ([email protected] or [email protected]).