1. Introduction - Elvinger, Hoss & Prussen

LUXEMBOURG3.7. Use of hybrid entities or hybrid securitiesThe acquisition via a Luxembourg partnership would in most cases result in aLuxembourg PE for the buyer. As discussed above (section 2.2.1 and section2.11), the participation exemption should also be available if the acquisition ismade via a Luxembourg partnership or a Luxembourg PE.Further, in terms of acquisition finance, it is possible to finance a Luxembourgacquisition vehicle with instruments which are considered as debt from a Luxembourgperspective, but nonetheless entitle its non-resident holder in its ownjurisdiction to the rules on elimination of double taxation available for equityinvestments.4. Acquisition of parts of local target business byforeign acquirerIn this section, it is assumed that only part of the assets of the target are acquired.The assets may either be acquired directly or may first be isolated in a specificbusiness.For an asset sale, the principles discussed in section 3 apply.The isolation of parts of the assets in a specific business can be carried outeither by a full division or by a spin-off of the relevant assets to a new companyor to the acquirer.As seen above (section 2.3 and section 3.4), it is possible to demerge or splitoff an autonomous part of the entire business of a Luxembourg company into anew Luxembourg vehicle in tax neutrality. The shareholders of the Luxembourgtarget are allocated shares of the new Luxembourg company, which is the transfereeof the business to be sold, possibly in exchange of part of the shares in theexisting Luxembourg target. This share-for-share exchange may be made in atax-neutral way. The shareholders of the new Luxembourg vehicle may furthersell their shares in the Luxembourg vehicle, by relying on the capital gains participationexemption (see section 2.2 above), bearing in mind that the holdingperiod which has elapsed on the shares of the target before the split-off will bedeemed to be part of the holding period of the shares received in exchange.5. Acquisition by a Luxembourg acquirer of parts or allof a foreign target5.1. Luxembourg tax considerationsTypically, Luxembourg acquisition vehicles are used for the acquisition in aforeign target, either if, in a share deal, the Luxembourg participation exemptionon dividends and capital gains is available in respect of the shares in the foreigncompany which is to be acquired, or, in an asset deal, if Luxembourg has atax treaty with the jurisdiction of the target. The latter case would enable the456