Richemont Restructuring To Avoid Luxembourg Tax Bite

by Ulrika Lomas, Tax-News.com, Brussels

11 August 2008

Compagnie Financiere Richemont S.A. (CFR), one of the world's leading luxury goods groups, has announced its decision to restructure its business to avoid paying more tax when Luxembourg's holding company rules are finally abolished in 2010.

Under the plan, announced by CFR on 8th August, the core luxury goods business will be retained in Geneva, Switzerland, and a separate investment vehicle will be set up and listed on the Luxembourg Stock Exchange. This restructuring will result in the distribution of 90% of Richemont's interest in British American Tobacco (BAT) to its shareholders.

In its announcement, CFR explained that the restructuring addresses the changes to tax legislation in Luxembourg, which it said would make the current group structure "significantly less attractive" to unitholders from 31 December 2010 onwards.

Following a decision by the European Commission that Luxembourg's '1929' holding regime, alongside several other structures, violated EC Treaty state aid rules by granting "unjustified tax advantages" to providers of certain financial services who set up holding structures in Luxembourg, the country reluctantly announced the termination of the regime on 1 January, 2007. However, pre-existing publicly listed companies can continue to benefit from the regime until 31 December, 2010.

The 1929 regime exempted qualifying companies from corporate income tax, withholding tax on dividend payments and certain other Luxembourg taxes.

As a result of the restructuring process, Richemont units, comprising shares issued by CFR and participation certificates (PCs) issued by Richemont S.A., will be de-twinned on 20 October 2008 to create two separate entities: CFR will become a focused luxury goods business, holding all of Richemont's luxury assets, and will continue to be headquartered in Geneva and listed on SWX Swiss Exchange; Richemont S.A. will be converted into a Luxembourg investment vehicle listed on the Luxembourg Stock Exchange, to be renamed Reinet Investments S.C.A. (Reinet), which will focus on long term capital growth.

Commenting on the proposals, Mr Johann Rupert, Executive Chairman of Richemont, said: “We have undertaken a detailed review of the alternatives open to the Group in the light of the need to restructure prior to the end of 2010. The proposals separate the luxury businesses from the investment holding activities."

He added that: "Reinet will be an investment vehicle which will invest in a broad-based portfolio of asset classes targeting long term capital growth. Unitholders will obtain direct access to 90% of Richemont’s interest in BAT.”

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