France-Luxembourg tax treaty renegotiation will cost investors
14 February 2012
Joe Dalton
Foreign investors using Luxembourg holding companies to buy French real estate must restructure their investments or face a significantly increased tax bill, because of imminent amendments to a tax treaty between the two countries.
At present, the France-Luxembourg tax treaty enables France to tax Luxembourg companies on rental income and capital gains derived from directly held French real estate property.
However, there is no provision in the treaty allowing France to tax gains on the disposal of shares in French real estate property companies held by Luxembourg entities.
Thus, providing the Luxembourg holding company has no permanent establishment in France, many investors will be enjoying double non-taxation on such gains, given that they are mostly tax exempt in Luxembourg too, under participation exemption rules.
The French government is now putting pressure on Luxembourg to amend the treaty so that the sale of shares in French real estate companies...
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