Page 244 - Invited Paper Session (IPS) - Volume 1

IPS152 Paul F.
SPEs have no or little employment up to maximum of five employees, no
or little physical presence and no or little physical production in the host
economy.
Most Luxembourg captive financial institutions have no employment and
very few Luxembourg SPEs have more than five employees. The assessment of
SPEs employment is based on:
- Employment in the statistical business register,
- Non-zero staff cost in the profit & loss account, staff costs usually
reflecting the compensation of directors. Some directors may
participate in several boards.
However, not the companies themselves but providers of financial services
(accounting, auditing, etc...) perform work on behalf of their SPEs clients. Those
providers of financial services have indeed a physical presence in Luxembourg.
It would therefore be a bit misleading to argue that SPEs “do not generate
employment”, without taking into account this indirectly generated economic
4
activity .

SPEs are directly or indirectly controlled by non-residents.
Table below summarises the SPEs status of Luxembourg financial
institutions Most Luxembourg captive financial institutions are directly or
indirectly owned by non-residents. This ownership through a lasting interest
(defining a Direct Investment) is the most common proxy for control between
two institutional units. By contrast, Luxembourg Investment Funds are typically
not held by direct investors “controlling” the entity but instead by minority
investors, which makes them non-SPEs . Last, Securitization Vehicles are
5
usually held by direct investors, but the main part of their liability is made of
debt securities (Portfolio Investment).

SPEs are established to obtain specific advantages provided by the host
jurisdiction with an objective to (i) grant its owner(s) access to capital
markets or sophisticated financial services; and/or (ii) isolate owner(s)
from financial risks; and/or (iii) reduce regulatory and tax burden; and/or
(iv) safeguard confidentiality of their transactions and owner(s).
This part of the definition does not refer to objective criteria such as the
structure of a balance sheet or a concrete business model. It touches upon the
competitiveness of each jurisdiction and is therefore much less

4 The same goes for Investment Funds, which strictly have zero employment but still bring about
labour intensive activity (custodian banks, transfer agents, fund administrations).
5 In addition, a European convention (that the ECB suggested as a research topic in IMF External
Sector Statistics) stipulates that all investment fund shares should be classified as Portfolio
Investment.

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