Luxembourg: Luxembourg signs new protocol to treaty with France

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Luxembourg: Luxembourg signs new protocol to treaty with France

fister.jpg

schmitz.jpg

Emilie Fister


Samantha Schmitz-Merle

The long awaited protocol to the France-Luxembourg double tax treaty (DTT) was signed on September 5 2014. The protocol amends the rules applicable to capital gains on the sale of shares or other rights in real estate companies and allocates the right to tax these gains to the source country. The protocol provides that capital gains derived by a resident of Luxembourg or France from the alienation of shares, units or other rights in companies, trusts or any other entities that derive directly or indirectly more than 50% of their value from real estate assets located in the other contracting state are taxable in the source country (the country in which the real estate is located). In other words, these gains are taxed in the same way as real estate income. Real estate assets allocated to the business activity of an enterprise are excluded from this clause.

So far, under the existing DTT provisions, capital gains realised on the sale of shares in real estate companies were taxed at the place of the residency of the seller. In other words, gains derived by a Luxembourg company from a French property company holding French real estate were exempt in France and only taxable in Luxembourg. In Luxembourg, they could possibly benefit from the Luxembourg participation exemption regime. With the new provisions of the protocol, capital gains derived by a Luxembourg company from a French property company will become taxable in France.

Furthermore, particular attention has to be paid to the wording of this new provision. The wording goes beyond the recommendations of the OECD in its Model Tax Convention. While the latter covers only capital gains on the alienation of shares or comparable interests, the protocol covers shares as well as any other rights.

The amendment to the France-Luxembourg DTT will require a careful review of existing investment structures in French real estate so as to mitigate any potential adverse tax consequences. If both countries manage to complete the ratification procedures before year-end, the protocol will enter into force on January 1 2015, which means that clients with real estate investment structures in France or which plan to invest in French real estate should seek advice from their tax adviser quickly.

Emilie Fister (emilie.fister@atoz.lu) and Samantha Schmitz-Merle (samantha.merle@atoz.lu)

ATOZ – Taxand Luxembourg

Tel: +352 26 940 263 and +352 26 940 235

Website: www.atoz.lu

more across site & shared bottom lb ros

More from across our site

Veteran Elizabeth Arrendale will lead the new advisory practice, which will support clients with M&A tax structuring, post-deal integration, and more
MAP cases keep increasing, and cases closed aren’t keeping pace with the number started, the OECD’s Sriram Govind also told an ITR summit
Nobody likes paperwork or paying money, but the assertion that legal accreditation doesn’t offer value to firms and clients alike is false
Ryan hopes the buyout will help it expand into Asia and the Middle East; in other news, three German finance ministers have called for a suspension of pillar two
SKAT, which was represented by Pinsent Masons, had accused Sanjay Shah and other defendants of fraudulent dividend tax refund claims
TP managers must be able to explain technical issues in simple terms, ITR’s European Transfer Pricing Forum heard
Prudential had challenged HMRC over VAT group relief; in other news, Donald Trump unveiled timber and wood tariffs, and the European Commission published a ViDA implementation strategy
Australia’s CbCR rules have ‘widespread support’ and do not put American companies at a competitive disadvantage, the FACT Coalition said
Baker McKenzie advised two of the member firms involved, while several advisers provided transaction counsel to US-based Grant Thornton Advisors
Foreign remittance requirements put additional administrative burden on Indian law firms and strain their relationship with foreign associate firms, according to practitioners
Gift this article