Objectives of the Structure

The Double LuxCo mechanism serves two essential purposes:

1. 1. Anchoring the COMI in Luxembourg thereby reducing the risk that foreign courts assume jurisdiction; and 
   2. Ensuring that pledge enforcement can take place in Luxembourg, even if insolvency proceedings are opened in the borrower’s jurisdiction.

Typical Features of a Double LuxCo Structure

Double LuxCo structures generally incorporate the following elements:

1. COMI‑maintenance mechanisms:
Luxembourg‑resident directors for both LuxCo 1 and LuxCo 2; Board meetings held regularly in Luxembourg; and
Contractual arrangements relating to both companies governed by Luxembourg law.
2. Change‑of‑control protections: upon the occurrence of specific events (such as the opening of insolvency proceedings), the creditor can take control of LuxCo 2 and exercise the corresponding voting rights.

These features are typically incorporated into the articles of association of LuxCo 1 and LuxCo 2, as well as into the shareholders’ agreements, intragroup contractual arrangements, and/or the relevant financing documentation.

Luxembourg Financial Collateral Law: Collateral‑Driven Considerations

The strong protection granted to secured creditors under the Luxembourg’s financial collateral regime has been a key driver behind the widespread use of Double LuxCo structures. When properly constituted, Luxembourg law financial collateral arrangements – typically a share pledge granted by LuxCo 1 over the shares in LuxCo 2 – are designed to remain effective even if insolvency proceedings are opened in a foreign state (whether in or outside the EU) on the basis of the Luxembourg financial collateral law (commonly referred to as the “2005 Law”³).

A core advantage of using two Luxembourg companies is that it reinforces the segregation of risk and secures enforcement at the Luxembourg level. This structural layering ensures that the lender may enforce the Luxembourg pledge directly, without being hindered by insolvency proceedings affecting the foreign operating company, such as sauvegarde or equivalent restructuring processes in any foreign jurisdictions.

The 2005 Law provides that the enforcement of a Luxembourg pledge may be triggered by the occurrence of an “enforcement event”, understood as an event of default or any other contractually agreed event which, under the terms of the financial collateral arrangement entitles the pledgee to realise or appropriate the pledged assets.

The parties therefore enjoy full contractual freedom to define the events that may trigger enforcement, without the secured obligations needing to be due, payable, or breached. As a result, a lender may validly enforce its security even in the absence of a payment default or other breach, provided the triggering events have been clearly and validly agreed between the parties.

By centralising enforcement on the Luxembourg territory, the Double LuxCo structure enhances predictability, protects the integrity of the pledged collateral, and ensures the application of the creditor‑friendly mechanisms provided under the 2005 Law.

Spanish Perspective: Practical Advantages

For Spanish‑related financings – whether involving real estate projects or other asset classes – the Double LuxCo structure offers several notable advantages:

1. Single Point of Enforcement (Luxembourg)
The Double LuxCo structure centralises enforcement through the Luxembourg law share pledge over LuxCo 2. This usually avoids the need to set up multiple local securities/guarantees across different jurisdictions.

2. Time and Cost Efficiencies
Luxembourg financial collateral arrangements can be implemented quickly and do not need to be executed before a notary

3. A Straightforward Set-up
Incorporating two Luxembourg holding companies is a well‑established and highly standardised process, with new Luxembourg entities routinely incorporated within just a few days or weeks. Luxembourg also benefits from a mature ecosystem of Spanish speaking service providers – legal, corporate administration, accounting, and domiciliation – who are deeply experienced in cross‑border structures involving Spanish clients. For Spanish groups already familiar with using special purpose vehicles (SPVs) in financing transactions, transitioning to a Double LuxCo architecture generally entails minimal structural disruption and can be seamlessly integrated into broader acquisition, refinancing, or restructuring processes without significant operational complexity.

4. Preserving Ownership Control and Avoiding Equity Dilution
One of the most strategic benefits of introducing a Double LuxCo is that it can help sponsors or Spanish players retain control of a group without resorting to additional equity injections. Indeed, if a lender requires a group to improve its credit risk profile, the alternative might be:

• Issuing new shares;
• bringing in new investors; or
• Increasing the sponsor’s equity contribution – steps that often dilute the existing ownership structure.

  By contrast, a Double LuxCo structure enables a group to offer a robust and lender‑friendly security package that often supports the granting of new financing without affecting the equity stack, thereby ensuring that ownership control remains fully intac 

  By placing a share pledge at the level of LuxCo 2, a group keeps full operational and managerial control until an actual event of default arises.

  5. Full Control Until an Event of Default Occurs

• • Events of default must be contractually negotiated with the lender;

• • Acceleration and enforcement depend strictly on the agreed contractual triggers, not on vague legal concepts;

• • The borrower has greater predictability regarding when enforcement can (and cannot) occur.

• This legal certainty gives Spanish groups a much stronger grip on their business while offering lenders a robust, enforceable security mechanism.
  
  
  

  Timing Is Everything: When to Implement Your Double LuxCo Structure

Deciding when to implement a Double LuxCo structure is just as important as deciding whether to use one. The good news is that the structure offers exceptional flexibility and can be integrated at different stages of a financing cycle. The key moments are the following:

1. 1. At the Inception of the Financing Project

This is the most common moment to implement a Double LuxCo structure. Lenders frequently request the setup of the two Luxembourg holding companies at the outset, ensuring that:

• • The COMI of the holdings of a group are anchored in Luxembourg from day one,

• • The Luxembourg financial collateral regime derived from the 2005 Law applies seamlessly, and

• • Enforcement mechanics are aligned with lender expectations before the first closing.

Putting a double LuxCo structure in place at the beginning of your financing avoids future restructuring steps and ensures that all financing documents, security packages, and corporate governance rules are aligned from the start.

2. During the Life of the Financing 

If a double LuxCo structure was not established at the beginning, it can still be inserted at any time within the corporate chain. This flexibility is extremely valuable, particularly in the context of:

• • Refinancings;

• • Amend‑and‑extend processes;

• • Renegotiations of covenants; or

• • Lender requests to strengthen the security package.

In these situations, adding a Double LuxCo structure can be a decisive tool to satisfy lender requirements without jeopardising group control or disrupting day‑to‑day operations.

Tax implications of a Double LuxCo

The financing of a Spanish company by its Luxembourg parent broadly results in a tax efficient flow of funds, provided substance, beneficial ownership, business rationale, and documentation standards are met. From a Spanish tax perspective, interest paid by the Spanish borrower to the Luxembourg lender (LuxCo 2) should generally be exempt from withholding tax under Spain’s domestic exemption for EU lenders, assuming the Luxembourg company is fully taxable, has sufficient substance, valid business reasons, and can evidence beneficial ownership over the interest, as well as tax residency. Substance entails having appropriate human and material means (such as staff, office space, and genuine decision‑making capacity) in Luxembourg to demonstrate that the company operates as a real economic actor. To qualify as beneficial owner, the Luxembourg lender must receive, use, and control the interest income for its own benefit, bearing the economic risk and not being obliged to pass the funds to another party. Valid business reasons involve demonstrating that the structure responds to genuine commercial needs rather than being motivated primarily by tax advantages.

The intercompany interest should be deductible in Spain, subject to transfer pricing compliance and Spain’s interest deduction limitation rules. No Spanish stamp duty arises as long as security is granted through pledges not registered in public registries. In Luxembourg, the loan receivable generates fully taxable interest income and may trigger net wealth tax, while the transaction requires appropriate equity at risk, arm’s length terms, and sufficient substance to withstand scrutiny.

Dividend distributions from Spain to Luxembourg (LuxCo 2) may be exempt from Spanish withholding tax under the EU Parent-Subsidiary regime, again contingent on substance, beneficial ownership, and valid business reasons.

Overall, the structure is efficient, but requires demonstrating genuine business rationale, beneficial ownership and appropriate economic substance in Luxembourg, as well as robust transfer pricing and tax residency documentation to support the afore-mentioned cross-border tax outcomes.

Conclusion

The Double LuxCo structure has proven effective in enabling Spanish companies to access liquidity while protecting lenders and investors in insolvency scenarios – offering legal certainty, efficiency, and flexibility for all parties. 

This article is provided for information only, based on prevailing market practice in the implementation of Double LuxCo structures. It does not constitute legal, tax or commercial advice. Parties should obtain transaction‑specific counsel, including legal, tax, and regulatory analysis in all relevant jurisdictions.

Prepared by the following members of the Cámara de Comercio de Bélgica y Luxemburgo en España:

Cédric Raffoul, Stellan Partners

Jean-Baptiste Joannard-Lardant, Stellan Partners, Member of the Next Gen Forum and Luxembourg Delegate

Gwen Wyndaele, PricewaterhouseCoopers Tax & Legal S.L., Leader of the Next Gen Forum

Cœur Défense case law¹

 

^[1] Paris Commercial Court, 3 November 2008, 1st Chamber A, RG : 2008077996 for Dame Luxembourg and Paris Commercial Court, 3 November 2008, 1st Chamber A, RG : 2008077997 for Heart of La Défense ; Paris Court of Appeal, 25 February 2010; Cass. com., 8 March 2011; Versailles Court of Appeal, (on referral) 19 January 2012.

 

EU Insolvency Regulation²

 

² Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast).

 

the “2005 Law”³

 

³ The amended law of 5 August 2005 on financial collateral arrangements.