17 April 2024

US Fund Managers, What About The Confidentiality Of LPs In A Luxembourg Special Limited Partnership? – New York Office Snippet

US Fund Managers ("USFM") usually rely on the Luxembourg special limited partnership ("SLP") as a fund vehicle to raise capital in the EU.
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US Fund Managers ("USFM") usually rely on the Luxembourg special limited partnership ("SLP") as a fund vehicle to raise capital in the EU. USFM often face questions on the confidentiality of information relating to investors ("LPs") in an SLP. Below we will delve into Luxembourg company law, anti-money laundering ("AML"), tax and contractual aspects of LP confidentiality.

Company law aspects

LP information is recorded in an LP register held by the General Partner ("GP"). LPs have access to the register, but access rights are usually restricted to their own information. LP information is not published with the Luxembourg Business Register ("LBR").

AML aspects

The SLP must disclose certain details of its ultimate beneficial owners ("UBOs") in an UBO register ("UBOR") held by the LBR. The typical example of an UBO is an individual that ultimately owns more than 25% of the SLP. As the LPs of a private fund vehicle are seldom individuals, LPs seldom qualify as UBOs. The individuals ultimately owning the LPs may however qualify as UBOs, provided they meet the more than 25% threshold. In a private fund context it is highly unusual that such individuals are identified. Even if a UBO would be identified in the LP chain, it is noted that the UBOR is not accessible by the general public, but by national authorities, professionals that are subject to AML obligations and certain journalists.

Tax aspects

Information on LPs in an SLP is generally reported to the Luxembourg tax authorities ("LTA") pursuant to different reporting frameworks such as the SLP's income tax filings, the FATCA and CRS reporting frameworks, and - in specific cases - the so-called DAC 6 reporting rules. Such information is generally subject to exchange with foreign tax authorities. DAC 6 requires certain parties to disclose information on particular arrangements with an EU link that have a tax avoidance potential. If the arrangement encompasses an SLP, the reporting may include LP details. However, SLP structures launched to raise EU capital do typically not have such tax avoidance potential.

Contractual aspects

Like in a Delaware or Cayman LP the confidentiality of the side letter process can be secured if an SLP is used; the exchange of side letter terms only defines the terms, but not the LPs that benefit from them. As per fund documentation, GPs are permitted to exchange LP information with different actors in the fund structure subject to confidentiality and/or data privacy conditions.

The confidentially of LPs in a private fund organized as an SLP is well guaranteed. LP information is not published in the LBR and is usually not published in the UBO register. The LTA collects LP information and may share it with foreign tax authorities. Any exchanges of LP information among actors in the fund structure is subject to confidentiality and/or privacy conditions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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