Key Features of Captive Financial Institutions and Money Lenders (sector S127) in Luxembourg

Di Filippo, Gabriele and Pierret, Frédéric (2020): Key Features of Captive Financial Institutions and Money Lenders (sector S127) in Luxembourg. Published in: BCL Working Paper No. 150 (December 2020): pp. 1-55.

Abstract

The paper provides insights into captive financial institutions and money lenders (sector S127) in Luxembourg. To this end, the paper relies on two metrics: the total assets and the total number of S127 entities. The analysis breaks down the evolution of both metrics across various dimensions: by main economic activity performed by the groups owning S127 entities, by nationality of the groups, by geographical counterpart of the balance sheet of S127 entities, by balance sheet item and by type of S127 firm. The period covers Dec. 2014 - Dec. 2019. Given data availability, the analysis relies on a sub-sample of the whole population of S127 firms. This sub-sample features S127 firms whose total assets are at least equal to EUR 500 million. As of Dec. 2018, this sub-sample represents about 5% of the total number of S127 firms in Luxembourg, and about 85% of the total assets held by S127 firms in Luxembourg. Results show that groups resorting to S127 entities perform various economic activities. Groups undertaking non-financial activities account for 80% of the total assets held by S127 entities and 70% of the total number of S127 entities. The remaining share relates to groups involved in financial activities. Across economic activities, the finance and insurance industry - and notably investment funds - holds the most important share of assets and number of entities in the sample of S127 firms. Groups headquartered in the United States own the major share of S127 entities, whether in terms of total assets or number of S127 entities. Luxembourg represents the most important balance sheet counterpart of S127 entities, suggesting that groups own several captive financial institutions in Luxembourg. The predominant financing means in the aggregated balance sheet of S127 entities mainly relate to equity and debt both as direct investment. The most important type of S127 entities are holding entities, followed by intragroup lending corporations and mixed structures. The dynamic analysis shows that total assets held by S127 entities increased over the period Dec. 2014 - June 2017 and decreased from July 2017 to Dec. 2019. The total number of S127 entities rose over the period Dec. 2014 - Nov. 2018 and declined between Dec. 2018 and Dec. 2019. The main contributors underlying these dynamics differ in terms of magnitude and sign over time, depending on the main economic activity performed by the groups owning S127 entities, the nationality of the groups, the balance sheet counterpart of S127 entities, the balance sheet item and the type of S127 firm. The main motive driving the expansion phase of the number of S127 entities before Dec. 2018 relates to entities created in the past and whose total assets increased above the EUR 500 million reporting threshold. The main motives driving the decrease in the number of S127 entities after Dec. 2018 pertain to S127 entities whose total assets fell below the EUR 500 million reporting threshold but that are still operating, and to liquidations of S127 entities.

• Item Type: MPRA Paper
• Language: English
• Keywords: Captive financial institutions and money lenders, Sector S127, Multinational Enterprises (MNEs), Ownership chains, Organizational structure
• Subjects: C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs > C80 - General

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