Mike Gordon

Reserved alternative investment fund registrations (Raifs) in July continued a moderate recovery from a slowdown earlier this year, with 31 new Raifs added to the Luxembourg Business Register list.

A Luxembourg tribunal decision barring a local company from using investment losses to write off capital gains taxes imposed on a real-estate transaction has caused worry in some corners of Luxembourg’s investment world. Using losses to cut income tax due is a well-established practice. However, a legal analysis by ATOZ, the law firm that alerted many to the 30 March 2023 court decision, says the decision is unlikely to survive an appeal.

Under the guidance of the European accounting directive, Luxembourg is overhauling its accounting laws in a major way. The effort aims to modernize and align with current market practices, reflecting Luxembourg’s business profile. The changes also include additional requirements for SCSp partnership vehicles, commonly used for funds, and firms with over 500 million euros on their balance sheets. It’s a daring move toward increased transparency and compliance, showing Luxembourg’s determination to maintain its status as a leading financial center.

UK law firms are seizing new opportunities in Luxembourg following a lift of post-Brexit restrictions. With the recent parliamentary approval of a provision from the 2020 UK-EU Trade and Cooperation Agreement in June, British barristers are returning to the Grand Duchy. Mindful of the substantial revenue potential in the region, these firms are showing vigorous interest in expanding their operations, marking a revival of British legal practice in Luxembourg.

In Luxembourg as in the wider world of finance, the marvels of artificial intelligence are being celebrated, but there’s a growing focus on the potential downsides. The risk of fraudulent behaviour and manipulation in financial markets is looming large, and both local and international cybersecurity experts are warning that today’s hackers may enhance their abilities through AI. This advancement is happening while numerous organisations are neglecting basic cybersecurity measures.

Luxembourg’s financial sector has felt targeted by the European Commission’s tax policy. Three subsequent anti-tax avoidance directives - known as Atad 1, 2 and 3 – each added more reporting requirements or forced adjustments to tax structures. In July the Commission referred Luxembourg to the Court of Justice of the European Union over how it extended an exemption from interest deductibility limits to EU securitisation entities in implementing the first Atad directive. But Luxembourg feels it has a strong case and seems happy to settle it in court.

The number of new reserved alternative investment funds registered in Luxembourg during a single month in June showed its first rebound since January. Issuance levels though are well below their historic averages. Economic and geopolitical issues get the blame, along with difficulties in raising institutional investment money. Still, faith in the vehicle remains strong, with private equity specialists expecting a further recovery in Raif registrations.

Globally active Accelex has set up in Luxembourg to sell its next-generation software as a service solution aimed exclusively at private markets because of the country’s leadership in private assets. The UK-headquartered company sees itself playing a key role in the maturation of the private assets market, including through the increased availability of such funds to retail investor clientele.

EU’s controversial financial market trading rules overhaul sparks dissatisfaction among stakeholders, following fractious trilogue negotiations. The agreement claims to enhance global competitiveness and simplify investing through improved market data access.

Luxembourg’s financial sector has faced a wave of tax avoidance legislation in recent years. But the impact of the earlier measures is likely to pale in comparison to the EU’s latest – the third Anti-Tax Avoidance Directive, known as the “Unshell directive”. Luxembourg tax specialists are anxious about its potential impact on the widespread use of shell companies, often known as ‘special purpose vehicles’, in Luxembourg company structures.