1. Introduction - Elvinger, Hoss & Prussen

LUXEMBOURGregulated sectors such as the banking, insurance and financial sectors generallyas well as in the media sector. Acquisitions may also need clearance by Luxembourgor EU competition authorities.There are no restrictions in Luxembourg from a legal or regulatory perspectiveon the form of consideration to be used in connection with the acquisition ofbusinesses and, in particular, consideration can be in the form of shares or notesor a combination of both whether issued by Luxembourg acquirors to Luxembourgor foreign sellers of the target business or by foreign acquirors to Luxembourgholders of a Luxembourg business. In circumstances where the acquisitiontakes the form of a public offer and where the consideration is in the form ofsecurities, Luxembourg public offer rules will apply.2. Summary of key tax principles2.1. Tax and capital gains – generalThere is no specific Luxembourg tax on capital gains but unless certain exemptionsor deferrals are available, any capital gain realised by a business person ora commercial company resident in Luxembourg is subject to Luxembourgincome or corporate income tax and will have to be included in its taxable profit.In the case of foreign business persons or companies which have a permanentestablishment (PE) in Luxembourg, any capital gains realised on the sale ofassets connected to this PE will have to be included in the taxable profit of theLuxembourg PE (article 156 LIR – Luxembourg income tax law of 4 December1967, as amended).Luxembourg corporations and PEs of non-resident corporations will be subjectto a combined rate of corporate income tax, municipal tax on income and solidaritysurcharge amounting to an aggregate rate of 30.38 per cent.2.2. Sale of shares2.2.1. Substantial participation exemptionLuxembourg tax law provides for a tax exemption from capital gains on the saleof certain qualifying participations. The exemption is commonly known as thesubstantial participation exemption (privilège mère–fille, Schachtelprivileg). Theexemption is only available to the following sellers:• fully taxable resident corporations (sociétés de capitaux). Types of residentcompanies which constitute corporations for these purposes are the publiclimited companies (sociétés anoymes), corporate partnerships limited byshares (sociétés en commandite par actions) and limited companies (sociétésà responsabilité limitée);• Luxembourg PEs of companies resident in a Member State of the EuropeanUnion and referred to by article 2 of the EC Directive of 23 July 1990 concerningthe common fiscal regime applicable to parent companies and subsidiariesof different Member States (90/435/EEC);440