Luxembourg Accounting Standards Board issues new Q&A on consolidation exemption for alternative investment industry

The Luxembourg Accounting Standards Board (Commission des Normes Comptables – CNC) issued Q&A CNC 25/036 today, which replaces Opinion CNC 09/002. This new guidance addresses interpretation challenges and reflects amendments to International Financial Reporting Standards (IFRS 10) and Luxembourg corporate law.

Luxembourg corporate law allows companies to exclude subsidiaries from their consolidated financial statements if the shares in those subsidiaries are held exclusively with a view to their subsequent resale. Additionally, a parent company may be exempt from preparing consolidated financial statements if all its subsidiaries qualify for this exclusion. 

According to the CNC, companies operating in private equity, venture capital, and now also real estate, infrastructure, private debt and similar alternative investment strategies can use this exclusion. This may therefore lead to an exemption from consolidation provided they satisfy certain conditions.

The following conditions must be met to benefit from the exclusion:

–           The company must have a documented exit strategy from the outset which is reviewed regularly, and a planned holding period generally not exceeding 10 years and never exceeding 15 years.

–           The exclusion must be applicable to all subsidiaries owned, except subsidiaries providing investment services notably to the parent company, which should be consolidated unless they are immaterial.

–           The fair value of subsidiaries held with a view to their subsequent resale must be disclosed in the notes to the standalone financial statements using generally accepted valuation methods, broken down by investment category.

–           Significant events, guarantees and uncertainties must be disclosed in the notes to the standalone financial statements.

Finally, the CNC clarifies that any Luxembourg company controlled by a company operating in the alternative investment industry may also use this exclusion and exemption, provided that the above conditions are met by its parent company. In this situation, shareholders holding at least 10% (for public limited companies – sociétés anonymes) or 20% (for private limited companies – sociétés à responsabilité limitée and other forms) must not have requested consolidated financial statements by six months before year-end.

This new guidance applies to any financial year for which the deadline for filing the standalone financial statements with the Luxembourg Trade and Companies Register has not yet passed.

What this means

Q&A CNC 25/036 provides helpful clarification regarding this specific exclusion from the scope of consolidation, which may lead to exemption from the consolidation requirement.