Description

PECs (Preferred Equity Certificates) and CPECs (Convertible Preferred Equity Certificates)

Luxembourg has become a major player in the European Private Equity market. One of the instruments which allows companies to take full advantage of the taxation benefits available in Luxembourg is the Convertible Preference Equity Certificate.

CPECs are often used in structuring transactions for internationally-based investors, as they are often treated as debt for Luxembourg tax purposes, hence the interest (yield) paid to holders of CPECs would not be subject to withholding tax in Luxembourg. Under certain conditions, CPECs can also be redeemed or repurchased. If a company’s investments are successful, the CPECs will be repurchased at a higher price. This would not be considered as a dividend and, as such, not be subject to Luxembourg withholding tax.

PECs and CPECs can be a good solution for assets like participations, portfolio placements, IP rights, receivables, etc. which ultimately need to be paid out to holders wishing to increase their benefit from the European participation exemption or double tax treaties.