Small but perfectly formed
Itís not hard to see why the Grand Duchy of Luxembourg ñ one of the smallest countries in Europe with a total population 451,600, of whom only 277,400 are citizens and has become known globally as a trustworthy political and economic partner18/11/2008
Historically, Luxembourg’s economy has been largely influenced by its steel industry. But in order to avoid the risk of over-reliance on this one sector, as well as to diversify the economy of the country and to attract foreign multinationals, significant reform efforts were made by the government in the early ’70s. As a result of this reform, Luxembourg’s economy has been growing considerably faster and nowadays relies on a broad range of industries.
The most significant part of the Grand Duchy’s diversified economy is its flourishing financial sector, which comprises more than 200 banks, 1,900 investment funds and 20,000 holding companies. Luxembourg is considered to be one of the most important financial centres in Europe that offers the entire spectrum of financial services in both corporate and private banking. It is the third largest investment fund centre worldwide.
There are other reasons for Luxembourg’s big reputation. A highly competitive tax regime, strict banking secrecy laws and an international business environment have made it one of the leading locations for corporate headquarters. Insurance, private pension funds, securitisation and venture capital investment vehicles are another large part of the financial sector. As a result of its continuous economical growth, Luxembourg has become a country with some of the most favourable standards of living, with one of the highest GDP’s (gross domestic product) in the world (approximately €50,800 per inhabitant), low inflation, low unemployment, a safe environment and a balanced budget.
One of Luxembourg’s leading law firms, Bonn Schmitt Steichen, typifies the qualities that have made the little country a major success. From its base in the Grand Duchy, the firm’s multilingual team offers unrivalled legal solutions to a client base that stretches through Europe to Russia, the US, South America, South Africa, Asia and the Antipodes.
Strategically located
The success of the legal sector in Luxembourg – and of BSS – is due partly to the country’s strategic location at the heart of Europe, where it is well-placed to advise on trans∞border matters with ease in a multiplicity of languages. The fact that Luxembourg is small allows law firms such as BSS to maintain a well-developed relationship with the regulators and the market players.
BSS’s clients range from leading international financial institutions and industrial corporations, to national governments, media companies, pharmaceutical, and food and beverage groups from Forbes’s ‘The Global 2000 List’. The firm regularly advises Luxembourg state, local and regulatory authorities on a wide range of legal matters.
BSS also offers its clients a wide skills base, with seven main areas of expertise and service: corporate, banking and finance, investment management, litigation, tax and regulatory. This has made it an ideal full-service law firm for corporations and individuals who need advice and guidance in more than one area.
The firm’s award-winning corporate department advises national and international corporate clients on all of their day-to-day legal obligations and requirements. The scope of the company’s advice ranges from corporate formalities and general business needs to merger and acquisition (M&A) projects, corporate finance transactions, and bankruptcy and insolvency proceedings.
The award-winning banking and finance team advises on all banking issues under Luxembourg law, with particular expertise in relation to sale and leaseback arrangements, secured transactions, and secured debentures involving Luxembourg-based banks. Experts on the firm’s structured finance team offer a business-orientated approach to cross-border securitisations, structured products and other sophisticated financing transactions. The team also helps issuers with listing securities and publication requirements. London-based consultants Lipper (formerly Fitzrovia International Limited) recently ranked BSS as one of the “four major players” providing legal services in Luxembourg in the investment management field. A BSS spokesman said: “The breadth of our experience in setting up venture capital structures in Luxembourg allows us to provide specialist tailored guidance to investment managers seeking sustained success.
“Our property law team routinely helps both domestic and foreign real estate projects set up through Luxembourg investment vehicles with their regulatory and transactional requirements.”
The firm’s innovative litigation practice focuses on commercial and financial cases, portfolio management liability and bankruptcy cases. BSS also represents its clients before all Luxembourg courts, including the labour court and the administrative court. The litigation team is experienced in alternative dispute resolution (ADR) and regularly represents clients in arbitration proceedings whether under ICC rules or Luxembourg law.
The firm’s tax practice covers all aspects of tax planning, structuring financial transactions for corporate clients and creating Luxembourg∞based vehicles to take advantage of local tax exemptions. The team has considerable experience in resolving disputes with the tax administration by agreement, through administrative proceedings and through legal proceedings before the courts.
In the regulatory field BSS has several attorneys sitting on advisory panels to the regulators, making the firm ideally positioned to help and represent market participants in all their dealings with the Luxembourg regulators, including the financial supervisory authority, the tax authorities and the Luxembourg Stock Exchange.
“All these areas of our business are important to us,” said the BSS spokesman. “But we have, in recent years, invested significantly in the development of our banking and finance teams. The existing excellence drew the attention of our clients and of decision makers in the market.
As the workload has grown, we have built on the success of these teams and have added support to their numbers.
“The finance industry, in particular the fund industry, enjoyed solid growth rates over the last decade. However, the Luxembourg government intends to be less dependent of the finance sector and to actively support the development of other sectors, such as services, industry and research.”
Synergy is at the very core of the BSS ethic. The firm’s staff come from varied national, academic and professional backgrounds and the combination of their skills and experience brings a multifaceted analysis to the work the firm does. As an independent firm BSS can remain as flexible as possible in meeting the needs of its clients. Its membership of Lex Mundi – the world’s leading association of independent law firms – and its long∞standing relationships with a network of key players in international law firms, allow BSS to put all of the benefits of international cooperation at the disposal of their clients.
Award-winning
BSS has been involved in a number of high profile cases. At the 2007 International Finance Law Review (IFLR) awards, BSS took home a trophy for its role in the Mittal/Arcelor takeover, which won M&A deal of the year. This year, the firm did even better when it was named the Luxembourg law firm of the year.
The principal reason for the firm being named Luxembourg law firm of the year was its role on Babcock & Brown – the IFLR project finance deal of the year. This ¤1.03bn deal involved the refinancing of a 1,678-megawatt portfolio of wind farms. Babcock & Brown wants to expand and acquire more wind farms so it wanted the ability to access money quickly.
The financing was described as “corporate-styled” and was a first for wind farms. It represented a sophistication of the industry, and other renewable sectors such as solar and wave energy could use this structure in due course. BSS provided local law advice on Luxembourg matters.
Elsewhere, BSS had a particularly strong year in structured finance. It was heavily involved in the issue of €970m notes with respect to lease receivables originated by Volkswagen Leasing and on the bridge financing and final issue of mortgage-backed notes originated by Commercial Bank Sovfintrade. BSS advised the issuer on the first deal and the issuer’s parent company (Gazprombank) on the latter.
Finally, BSS was recognised for its advice to Wilson Sons, which listed $173.5m of shares on the Euro MTF market of the Luxembourg Stock Exchange in connection with an IPO in Brazil.
BSS has also won the New Economy magazine ‘Best Banking & Finance Team of the Year – Luxembourg’.
“We are an independent international law firm, and this independence and internationalism is reflected by the various backgrounds and nationalities of our outstanding team,” said BSS. “And of course this is a great asset in
cross border transactions. The awards reflect the quality of our work.”
Luxembourg’s stability and the success with which it has steadily transposed EU directives have made it one of the most attractive jurisdictions in Europe for foreign investors. This has been a longstanding policy of legislators and regulators.
“Investors and overseas corporations doing business in Luxembourg know exactly where they stand because the legislative environment is very transparent,” said BSS. “The business environment in Luxemburg is mature
and well-regulated, which means there are few uncertainties for foreign investors.”
As one of the most competitive countries in the world, the Luxembourg government’s proactive policies in attracting FDI have contributed to consistent investment growth and strong projections for future investment. Many international firms find it convenient to locate European headquarters or holding companies in Luxembourg as a result of the country’s openness to foreign cultures and its excellent balance between the high quality of life and high purchasing power. Approximately 40 percent of Luxembourg residents and over 65 percent of the workforce are composed of foreigners, mainly from EU countries.
Successive Luxembourg governments have continued the development of the economy, effectively attracting new investment in medium, light and high∞tech industries through the use of incentives, including deferred corporate tax payment schedules, capital investment subsidies and financing of plant equipment.
e-Business
Electronic services and e∞business is another growth sector. The European Union (EU) directive on services provided electronically has caused a number of companies to establish and consider basing European headquarters in Luxembourg, with its low VAT rates. The maximum VAT rate in Luxembourg is 15 percent – as opposed to 21 percent in Ireland, for example.
In the past three years, major US electronic service providers have chosen Luxembourg as their European base of operations, including America Online (AOL), Amazon, Apples i∞Tunes. In fact, US firms are among the most prominent foreign investors in Luxembourg, producing tires (Goodyear), chemicals (DuPont), glass (Guardian Industries) and a wide range of industrial equipment.
Foreign investors also have faith in the Luxembourg judicial system, which upholds sanctity of contracts. There is no overall economic or industrial strategy that has discriminatory effects on foreign∞owned investors. “There are no limits on foreign ownership or control, only general screening of foreign investment,” said BSS. “And these screening mechanisms are routine and non-discriminatory.”
The Luxembourg legal system is subject to constant scrutiny by the legislator to maintain its attractiveness and competitiveness. The latest draft bills of the legislator with respect to business law address potential changes in corporate law and tax law matters.
Luxembourg generally boasts a liberal investment regime. There are no officially ‘closed’ sectors, although a few industries, primarily utilities, are still dominated by majority state∞owned companies.
That said, there are no major sectors in Luxembourg in which foreign investors are denied national treatment (equivalent to domestic firms). Foreign investors are allowed to participate equally in ongoing privatisation programmes, and the bidding process is transparent with no barriers erected against foreign investors at the time of the initial investment or after the investment is made.
There are no laws or regulations specifically authorising private firms to adopt articles of incorporation or association which limit or prohibit foreign investment, participation, or control, and there are no other practices by private firms to restrict foreign investment, participation in, or control of domestic enterprises.
The regulatory environment is another attraction for foreign investors. BSS says the Luxembourg regulator understands the problems and needs of the market participants and is therefore very responsive. Luxembourg’s regulatory environment is so well-developed that BSS says no significant changes are needed. Luxembourg tax law offers many incentives that facilitate the international tax planning for groups of companies. The legislator endeavours to keep the tax environment as competitive as possible. As a consequence, it is likely that Luxembourg will abolish capital duty and decrease the rate of corporate income tax in 2009.
But BSS isn’t only limited to doing business related to Luxembourg. Because it is a member firm of Lex Mundi, BSS can quickly obtain information and advice for clients with respect to most other jurisdictions. “We have also established privileged relationships with various international law firms and this means we can offer our clients access to a truly international practice with the highest standards of quality,” the firm said.
Even the credit crunch seems to have posed little threat to Luxembourg’s stability. Since the financial crisis began, says BSS, there has been an increased emphasis on the planning and structuring of transactions along with a parallel demand for preparatory discussions and memoranda. But the credit crunch has not changed the nature of the advice BSS gives its clients. “The changes to the regulatory framework in Luxembourg since the credit crunch have been minimal,” BSS said.
“The Luxembourg economy is significantly reliant on the funds industry and as such there will be some repercussions from the credit crunch, as there will be almost everywhere. However, the government has shown its willingness to intervene to support industry wherever that support is needed.”
BSS, meanwhile, sees its own growth continuing in tandem with Luxembourg’s. “Our growth stems from our ability to evolve with our clients,” BSS said.
And there seems to be no end in sight to Luxembourg’s impressive growth. In July 2008, the Organisation for Economic Cooperation and Development (OECD) said in a survey that the Grand Duchy’s economy is in “fine shape” and has been growing at between four percent and six percent per year. That’s faster than almost all other OECD countries – and a good reason to believe that Luxembourg and the companies who do business there will continue to prosper.
